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Forex Flash: US ISM growth in focus – Deutsche Bank

The US they have been able to eke out a small amount of growth over the last 6 years (average ISM of 51.3) and in return the equity market is slightly higher than it was at the start. According to Macro Strategy Analysts J. Reid and C. Tan at Deutsche Bank, “Greece, Spain, Italy, Japan, Ireland and France in our sample have all had PMIs below 50 on average since early 2007 and all of these have equity markets notably lower than where they were at this point. Indeed its worth highlighting that the gap between the US ISM and French manufacturing PMI is now at record wides (since we have French data from early 1998).”

As such, today's numbers will be particularly interesting to see whether last week's disappointing European flash numbers are confirmed, including what may be fairly flat first sighters at the Italy and Spain numbers and also whether the US continues to lead the developed market pack. “We still think these numbers over the next few months will dictate markets. On our PMI/ISM vs. equity regression model the US market is now broadly fair value given the recent rise in the ISM.” they add.

Interestingly France is very over-valued on this measure (over 30%) followed closely by Japan. Japan has clearly benefited from the recent change in tact of the Government/BoJ so markets have understandably run way ahead of any potential growth benefits. This may be the correct trade but its built on expectations and hope for now.

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