How About Midpoint Decoupling?

With some PMI’s in the US on somewhat of an upswing, it already raises the issue of a midpoint in their trend. Given how the US data is pretty isolated in that way, could there also be midpoint decoupling? That’s what we would have to believe if the “bottom is in” folks have it right, those like Jay Powell who are arguing the worst is behind us (even if risks remain).

Remember that the idea of decoupling has already once been dashed during this eurodollar cycle. In 2018, while renewed (and “unexpected”) overseas turmoil erupted, for a brief time during especially the latter half of last year there was some talk of the US economy decoupling then. It didn’t happen, of course, which is how we got where we are today (rate cuts, not rate hikes).

In terms of IHS Markit’s PMI’s, then, the US is heading in the good direction while others, such as Japan, continue their way downward. Jibun Bank’s flash composite PMI for Japan, in conjunction with Markit, was 49.9 in November 2019. While that is up from 49.1 in October, Markit’s chief Economist warns that Q4 GDP is on track to be the first (annual) negative since Euro$ #3. And this follows near-zero growth in Q3, and therefore the precipice of technical recession already.

The economic weakness in November once again stemmed from a further deterioration of manufacturing operating conditions, where production volumes fell for an eleventh straight month. This marked the longest period of factory downturn since the depths of the global financial crisis in 2008-09.

Is Japan’s weakness really different from the cross-currents Jay Powell believes are in the US economy’s rearview mirror?

No. That’s why there’s never decoupling. Not last year, the time before (2015) nor the first time the idea was raised all the way back in early 2008 (Euro$ #1; only then it was hoped the rest of the world would decouple from the growing American and European disaster; it didn’t). Globally synchronized remains globally synchronized all the way through, start to finish.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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