Global Macro: World Manufacturing Data Exposes Holes

NEW YORK (TheStreet) -- Monday's worldwide PMI Manufacturing readings highlighted two things, world economies are stabilizing, but holes are still pervasive throughout the recovery.

The Far East showed that Chinese manufacturing remains fairly directionless, just bumping along the lines of expansion and contraction. A little north, however, Japan is reaping benefits from its monetary stimulus as its manufacturing data showed a pickup in momentum.

The first chart below is of PowerShares DB US Dollar Index Bullish ( UUP) over CurrencyShares Euro Trust ( FXE). Farther West there was a divergence in PMI data, where Europe showed strength and U.S. readings made the case for further stimulus.

U.S. manufacturing showed that it was expanding, but the level of hiring around the industry has slowed considerably. The Fed has tied so much of its policy to labor markets, that any sign of weakness could spur furthering monetary stimulus past expected completion dates.

Nonfarm payrolls employment data is on Friday, and weakness in U.S. manufacturing labor could weigh on the reading.

Price action from the chart below shows that the U.S. dollar spiked higher as an end to monetary stimulus became a reality. Investors sold off treasuries, which caused yields to push towards multi-year highs.

Markets are now correcting after hitting a major point of resistance. If data remains tepid this week, this pair should correct lower.

The next pair is of iShares MSCI Emerging Markets Index ( EEM) over Vanguard Total World Stock Index ETF ( VT). This pair shows the relative strength of emerging market equity versus a basket of global equities.

PMI readings out of Japan and Europe signaled that formerly weak economies have begun to stabilize. Accommodative policies in both, and a return in business and consumer sentiment have strengthened economic fundamentals. Although both are distant from being healthy, self-sustaining economies again, this is a start.

Alongside a stabilizing operating environment, a weaker U.S. dollar has also pushed emerging market equities higher. Markets initially overreacted to the idea that Ben Bernanke and the Fed would remove stimulus measures. Investors discounted the information too heavily into the present, and now a correction is taking place.

Emerging markets had benefited from low interest rates for cheaper borrowing, and excess stimulus to be invested into their markets. As this has gone away and the U.S. dollar has strengthened, investors have lost confidence in emerging markets.

A continually weak China has also weighed on emerging market revenues for exporting commodities.

A stabilizing world environment and a correction from the carnage of the past few weeks have aided emerging markets, but the overall trend remains downward.

At the time of publication the author had no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Andrew Sachais' focus is on analyzing markets with global macro-based strategies. Sachais is a chief investment strategist and portfolio manager at the start-up fund, Satch Kapital Investments. The fund uses ETF's traded on the U.S. stock market to gain exposure to both domestic and foreign assets. His strategy takes into consideration global equity, commodity, currency and debt markets. Sachais is a senior at Georgetown University earning a degree in Economics.

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