The Times They Are A-Changin' - especially if AI represents a new, second inflationary shock.
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What recent PMI data reveals about US, Eurozone and UK economic strength?
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Hello, Chris. Good to talk again. We're recording this on Thursday morning. It's been an interesting week on the data front, which had serious implications for financial market behavior because we're seeing bond markets doing a lot of very strange things at the moment and very dangerous things. We got the publication of the Purchasing Managers Indices for a number of regions and These are indices that actually, you know, measure business sentiment. Um, and they ask a whole load of, a range of questions about current conditions, about price pressures, about future orders, et cetera. But, um, In the UK, the composite index came in at 51.7, slightly weaker than the previous one. And the way to interpret these PMIs is a reading above 50 means more businesses expanding the contracting and vice versa.
So the composite index in the UK is still in expansionary territory, but it has weakened a little bit. In the euro area, in contrast, the composite index was up from 52 to 53.1, with the services component particularly strong, up from 51.6 to 53. And this PMI reading for the euro area, I think has been backed up this morning in a slightly different direction. statistical release, but we got the EU passenger car registrations for August up 4.5% year on year, the seventh straight month of growth. Spain is up 11.8%, France 7.4%, Italy 3.2%, Germany up 2.6%. And in the first eight months of the year, New car registrations up by 5.3%. Battery electric vehicles, 21.7% of the market, up from 15.8% a year ago.
So the point I'm making here is that despite everything that's going on in the world, you know, we're seeing reasonable levels of economic activity in the euro area. But the big one, of course, was the U.S., Its comps at PMI jumped from 56 to 58.4 in September. It's the strongest expansion in private sector activity since July 2021. Services up from 56.5 to 58.7. Manufacturing up from 53.1 to 56.7. Strong new orders. And I think most importantly, from an interest rate and a bond market perspective, price pressures have intensified, particularly input costs, and they're rising at the strongest level since October 2022. So that number, incredibly strong business sentiment indicator, and it has caused further carnage on global bond markets.
You know, we have the U.S. 10-year yield closing last night at about 5.12%. And of course, this is resonating across other markets. The U.K. 10-year is up at 5.35%. I think that hit was at 4.8% in October 22 when Liz Truss had her blowout budget with Quasi Quartang. So, The markets are really scared now. There's no doubt about that. And it is manifesting itself in an incredibly volatile and weak bond market performance. The markets are worried about growth picking up, about inflation picking up, about rising energy costs, and of course, about the response of central bankers to that. And the Fed increased rates in the last couple of weeks, and it's going to increase again. So the whole environment is changing, it's shifting.
Yeah, one
of the most important things you said there was that your last words, that there's definitely... Was it Bob Dylan? Have you ever heard of Bob Dylan, Jim? Bob
Dylan,
did he sing a song about the times they are changing? He sure did. I've sang it... Oh, God, please don't, if you're tempted.
How are rising US bond yields reflecting the latest market volatility?
I couldn't bear that. It's far too early in the morning. But while you were speaking there, Jim, you've probably seen, given the finger on the pulse chat that you are, that the German Business Climate Index, the famous IFO, has just come out to supplement all of that wonderful data that you talked about there. And guess what? It's at its highest level in over three years. That thing about resilience and things coming in different to how we expect, here we go again. And one of the interesting themes that I take from that, and there are many different strands that you could unpick from that, is that economic growth in certain parts of the world is coming in stronger than we expected. Either it hasn't fallen, that resilience point, or indeed that it's
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Chapters
7 chapters
1
What recent PMI data reveals about US, Eurozone and UK economic strength?
0:10–4:39
2
How are rising US bond yields reflecting the latest market volatility?
4:39–11:52
3
Is the AI investment boom turning into a new source of inflation and wage pressure?
11:52–18:39
4
Which economies are feeling the AI boom most, and why is Taiwan’s TSMC central to it?
18:39–24:48
5
What are the implications of record global debt and rising debt‑service costs for fiscal policy?
24:48–31:30
6
How might geopolitical tensions and potential wars reshape the global economic outlook?
31:30–34:31
7
What does the latest OECD outlook say about growth forecasts for the UK, US and Europe?
34:31–35:12
Speakers
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