US ISM manufacturing PMI to improve to 52.1 in November - TDS

Research Team at TDS, is looking for the US ISM manufacturing PMI to improve to 52.1 from 51.9, supported by a healthy trend in new orders.

Key Quotes

“ISM surveys capturing business sentiment and activity since the US election outcome will be closely watched as such 'soft' data provide a more timely gauge of economic confidence and any sharp deterioration may give the Fed hesitancy to tighten policy in December. For now, we view the likelihood of a negative responses among businesses to US elections as low given the favorable state of financial market conditions. In addition, regional factory surveys have shown no signs of alarm and even registered marked improvement on balance since October. In particular, the strength recorded in the Philly, Dallas Fed and Chicago PMI surveys point to upside risk to our forecast.”

“Foreign Exchange

The combination of better data and a surge in rates has fuelled the rally in the greenback. Notably, the November ISM should indicate that the US economy continues its modest acceleration into yearend. This is consistent with the recent string of data releases and the ISM is likely consistent with a steady run-rate of above trend growth. Moreover, the US data surprise index has rallied in November, retracing nearly have the level seen from the peak this summer. For the greenback this backdrop provides a nice transition into NFP but we caution about chasing the rally given stretched positioning and valuation. The greenback continues to trade rich against major 2y rate spreads and we also think the Fed will be a “sell the fact” event, suggesting some modest pullback in the greenback into yearend. Our positioning indicators also suggest the USD has run too far, too fast, leaving it vulnerable to mild drawdowns.”