March global manufacturing surveys point to stable overseas growth. Markit’s global manufacturing PMI was unchanged at 50.6 in March. According to economics research firm Capital Economics, this level is consistent with world gross domestic product (GDP) slightly below 3% in the first quarter (well below our 3.7% forecast from our Outlook 2019). Persistent weakness in Germany’s manufacturing sector, the region’s largest, continues to drag on overall growth with data released earlier today showing that new orders declined for a fourth straight month, driven by a 6.0% month-over-month drop in foreign demand. Still, we believe the sub-3% global growth forecast may prove pessimistic due to the impending U.S.-China trade deal and fiscal stimulus/incentives in place in the U.S.
Don’t let the manufacturing rebound in the U.K. fool you. The U.K. saw a strong rebound in its manufacturing PMI for March. However, we believe this reflects a production rush ahead of a possible (but increasingly unlikely) disorderly exit from the European Union. The improvement was not corroborated by the services reading in March, which was weak. Policymakers in the U.K. continue to work on a compromise ahead of the next deadline in a week.
Hard Brexit increasingly unlikely. Last night, U.K. lawmakers voted to block a no-deal Brexit. Bipartisan talks to strike a Brexit compromise continue today ahead of the April 12 deadline that will likely bring either a compromise or long extension. The British pound’s strength continued overnight.
Fed adjustment period. The Federal Reserve (Fed) may be done tightening, and investors are now scrambling for clues on what the U.S. economy could look like during this policy switch. We think the Fed’s patience could be prudent after a prolonged period of tightening, and there is historical precedent for a break from tightening in favor of a wait-and-see approach. On the LPL Research blog later today, we’ll highlight two Fed adjustment periods we’ve seen in the past 40 years, which occurred during the two longest economic cycles on record.
- Initial Jobless Claims (Mar 30)
- Nonfarm Payrolls (Mar)
- Unemployment Rate (Mar)
- Japan Leading Index (Preliminary Feb)
- Japan Coincident Index (Preliminary, Feb)
- Germany Industrial Production (Feb)
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