The AIG Manufacturing Index for Australia climbed to a very impressive 58.1 in April. Salute and congratulations to the private sector.
Will it work? The prospects will be favourable, much remains to be seen. And most importantly, global supply chain disruption is again in favor of buying local goods.
However, in terms of overseas demand, we see PMI data for China going deeper into severe contraction territory this morning. No surprise there. There is a special style of data crash for them in lock down.
The world’s largest port remains closed. When it does reopen, there is likely to be a challenging period of catching up with significant micro-dislocation around the port, perhaps for another 3 months. The global supply chain is no light bulb affair. No simple switch on off economic trajectory.
My prediction of a recession in China is on track. However, I see it as a touch and bearish. The movement beyond the United States has slowed as China moves out of the current Northern Hemisphere. Perhaps a few years before the new recession and recession in Europe.
While all this negative economic reality should be concerning for the Australian economy, leaders and business, the manufacturing sector, like employment, could be a stand-out beneficiary of reduced global connectivity. Travel and luggage.
The stock market crash picture we painted at the beginning of the year continues to turn ugly and potentially terrifying. While the United States has recently been making a comeback, the market there looks like a cliff hanger. As in, may not be able to hold.
This situation is taking a toll on the local sentiment.
The Australian stock market, now that is fully priced in higher commodity prices, is highly vulnerable to renewed global sentiment concerns over inflation, higher rates, war, rising bearish pressures from Europe, the US and China.
With the armament of energy now at our global doorstep, an alarming trend toward United States military supplies and Russian military conflict is rapidly increasing.
We highlighted that war may well have happened when some believed it was possible.
As the US significantly increases military supplies to Ukraine, direct Russian attacks on pipelines of that military equipment, close to neighboring countries’ other borders, is not something that markets should take lightly.
The US dollar, gold and oil remained bullish. Remain bearish stocks. Yes, the market war trend resumes and the gap is still the most likely risk scenario.