PMIdataandFrancisFukuyama

The start of this new month coincides with the release of PMI data which is one of the first monthly indicators to be released. As the name suggests the PMI or Purchasing Managers Index surveys the purchasing managers across manufacturing and services industries. These managers are the ones who are entrusted by their companies with the job of placing orders and anticipating consumer demand. As these managers are expected to have their ears close to ground, their assessments are important to forecast how the overall consumer demand would pan out and consequently how the economy is expected to grow. The simple calculation is demand for intermediate goods today would ultimately manifest into finished goods in future. This kind of ground level information is the hallmark of the diffused decentralized knowledge which any market economy revels in, making them a leading indicator and allowing the decision makers to course correct if needed.

Francis Fukuyama, in his book The End of History, traces the demise of the communist regimes around the late 1980’s. The one issue which gets prominently featured in the text is around the quality of data which the central planners of these economies had. With the non-market and heavily distorted data as the input. the wrong decisions were made and the whole edifice crumbled in the end. Market economies, on the other hand, had regular bouts of recession and growth but survived nonetheless.

Having eulogised and provided a philosophical context to the data point, let us now look at the prints which got released yesterday. US PMI data which is calculated by ISM came in at 54.2 reflecting a growing economy. The Eurozone PMI data came to expansion territory at 51.8 in July from 47.8 previously. In Germany and France, the PMI rose to 51.0 and 52.4, respectively. The Chinese Caixin PMI data showed a level of 52.8 in July from 51.2 in June. The Caixin survey is also called the small factory activity Index. In India the Manufacturing PMI came at 46.0 in July down from 47.2 in June. The contraction reflects the reality that many states in India are still in a partial lockdown mode.

The Dow Jones was up close to 0.8% in yesterday’s trade. The Hang Seng and Nikkei are up close to 0.8% and 1.6% respectively. The US Dollar Index is trading at 93.5 levels an improvement of 92.5 seen last Friday. The US 10 year yield is trading at 0.56. Gold trades at 1975$/oz.

Domestically, the Indian Rupee has opened above 75 levels in line with the dollar strength globally. Indian bonds remain mostly unchanged. The 10 year benchmark trades at 5.84. The MPC again will be an important event in deciding the future bond trajectory, even in case of a pause the commentary will be keenly parsed. Another important data point from yesterday was the FX reserves of the Indian Central Bank - the reserves now stand at 522 bn $. Just as a context Indian GDP is close to 2.1 trn $.