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4 August 2010
Monitor
Global: Business Cycle Monitor
Summary and outlook
Global leading indicators continued to decline in July showing further signs of slowing
growth in H2. Especially, China is coming to a halt but US indicators also point to a more Key leading indicators to watch
front-loaded slowdown. Europe has been the positive surprise with Germany looking
strong. Commodity prices have recovered somewhat but overall still point to a slowdown.
German factory orders: Aug 5
The Baltic Dry index is slightly higher but overall still at a low level. OECD lead. indicators: Aug 6
Indicators suggest a more front-loaded slowdown than expected. This is probably a German ZEW: Aug 17
consequence of the European debt crisis from spring and a stronger impact from Chinese German ifo: Aug 17
tightening measures than previously expected.
Euro flash PMI: Aug 25
We expect a further gradual slowdown of leading indicators in H2 and there is a rising risk
that global growth could slip below potential growth towards the end of the year. This US ISM / Global PMI: Sep 1
points to continued high market volatility and downward pressure on bond yields as
declining leading indicators will spur fears of a double-dip.
Details
Global PMI new orders fell again in July to 54.0 from 55.7 in June. This was the third
consecutive decline. However, the figures still point to growth slightly above trend.
In the US, ISM fell again in July to 55.5. Our ISM model points to a broadly flat reading in
the coming months and we expect it to reach 53-54 by year-end.
Euroland delivered the only positive surprise as both PMI and the German ifo point to
robust growth. German factory orders also paint an upbeat picture. However, some of the
more forward-looking indicators could be a warning of slowing ahead. OECD’s leading
indicator, the PMI order-inventory balance and German ZEW have come well off the
peaks. Scandi leading indicators are slightly softer but generally point to decent growth
rates.
Asia is showing signs of slowing growth. Chinese PMI has shown the biggest deterioration
with PMI new orders falling further below 50. Japanese industrial production has also
stagnated after several quarters of sharp increases. CEE indicators continue to indicate
strong growth rates, but some signs of slowdowns are also emerging. Activity in Brazil
has stagnated a bit as both PMI and industrial production are weakening.
Global PMI and OECD leading indicator PMI new orders manufacturing
50 50
Euroland
40 40
30 30 Chief Analyst
Allan von Mehren
20 20
+45 45 12 80 55
00 02 04 06 08 10 alvo@danskebank.dk
Source: Markit and Reuters Ecowin Source: Markit and Reuters Ecowin
www.danskeresearch.com
Monitor
US
Danske Markets ISM model Order-inventory balance vs. ISM
65 Index Index 65 75 Index Index 75
ISM manufacturing
60 60 70 70
65 65
55 55
60 60
50 50 55 55
ISM
45 45 50 50
45 45
40 40
Model +6months (1987-present) 40 40
35 35 ISM new orders less
35 35
inventories, standardized
30 30 30 30
98 99 00 01 02 03 04 05 06 07 08 09 10 11 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Inventory demand ratio vs. ISM Leading indicator vs. manufacturing production
15 3 mth chg., % AR Index 80 20 % m/m, AR 20
3 mth growth, AR %
15 << OECD leading indicator, USA, 2 mths lead 15
10 << Danske Bank US 70
inventory - demand ratio 2MA, 2m lead 10 10
5 5
5 60
0 0
0 50 -5 -5
-10 -10
-5 40 -15 -15
ISM >> -20 Manufacturing pro- -20
duction, 3 mth avg. >>
-10 30 -25 -25
98 99 00 01 02 03 04 05 06 07 08 09 10 98 99 00 01 02 03 04 05 06 07 08 09 10
Eurozone
Eurozone: Ifo expectations vs GDP PMI New orders vs. inventories balance
Germany: ZEW vs. Ifo expectations Germany: Industrial orders vs. OECD leading indicator
2| 4 August 2010
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UK and Switzerland
UK: PMI on sectors UK: Industrial orders vs. leading indicators
4 Standardised 4 20 % 1m, AR
Standardised Net bal 25
3 3 15
2 UK PMI manufacturing 2 10
CBI industrial orders >> 13
1 1 0
5
0 0 -13
0
-1 -1 -25
-2 -2 -5 -38
-3 UK PMI service -3 -10 -50
US ISM, new ord << OECD leading indicator, UK
-4 -4 -15 5 mths lead -63
-5 -5 -20 -75
98 99 00 01 02 03 04 05 06 07 08 09 10 98 99 00 01 02 03 04 05 06 07 08 09 10
Switzerland: KOF vs. GDP Switzerland: OECD leading indicator vs. industrial production
Scandinavia
Denmark: Manufacturing confidence vs GDP Denmark: Confidence indicators
3| 4 August 2010
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Finland: Confidence indicators vs industrial production Finland: Leading indicators vs. industrial production
CEE/CIS
CEE: Manufacturing PMI orders CEE: Industrial production
70 Index 70 30 % y/y (3MA) 30
Index Poland % y/y (3MA)
60 60 20 20
10 10
50 50
Hungary 0 0
40 40 Czech Republic
-10 -10
Poland
30 30 -20 -20
Czech Republic Hungary
20 20 -30 -30
00 01 02 03 04 05 06 07 08 09 10 98 99 00 01 02 03 04 05 06 07 08 09 10
4| 4 August 2010
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China
Industrial production vs. PMI Leading indicator vs. industrial production
106 Index Industrial production>> % y/y 25.0
104 20.0
102 15.0
100 10.0
98 5.0
<<Leading indicator
96 0.0
00 01 02 03 04 05 06 07 08 09 10
Source: Markit and Reuters Ecowin Source: Markit and Reuters Ecowin
Japan
PMI vs. industrial production Reuters Tankan vs. Industrial production
5| 4 August 2010
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Other Asia
Asia: Industrial production South Korea: Industrial production vs. exports
Taiwan: Industrial production vs. exports Thailand: Industrial production and export
20 % 3m/3m % 3m/3m 20 Jan. 2006 = 100
140 140
10 10 Exports
130 130
0 0
120 120
-10 -10 110 110
Exports
-20 -20 Industrial production
100 100
Industrial production
-30 -30 90 90
00 01 02 03 04 05 06 07 08 09 10 06 07 08 09 10
Baltic Dry freight index and metal prices CRB metals vs. industrial production
6| 4 August 2010
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Monitor
Disclosure
This research report has been prepared by Danske Research, which is part of Danske Markets, a division of
Danske Bank. Danske Bank is under supervision by the Danish Financial Supervisory Authority. The author of
this research report is Allan von Mehren, Chief Analyst.
Danske Bank has established procedures to prevent conflicts of interest and to ensure the provision of high
quality research based on research objectivity and independence. These procedures are documented in the Danske
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Risk warning
Major risks connected with recommendations or opinions in this research report, including as sensitivity analysis
of relevant assumptions, are stated throughout the text.
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