Four reasons to be cautious on the PMI data
- Manufacturing PMI data comes out pretty much globally today, and our analysis shows that markets prize these data releases a great deal. However there are four reasons to be cautious in interpreting these figures (anywhere).
- 1. Sentiment data tends to be more volatile than underlying economic data, implying overreaction. 2. There is evidence that the media may influence sentiment data more than economic reality (raising risks if media is inclined to be sensationalist).
- 3. Sentiment survey participants may "game" the process, giving answers that they feel will help achieve desired policy outcomes rather than which reflect their economic reality. 4. Participants may give answers in nominal terms when they are supposed to be answering in real terms.
- We have some central bank speak. Fed President Williams will presumably stick to the script he has been given (which is "rates will rise this year"). ECB President Draghi may mention the negative CPI print, but does not have a strong enough case to be aggressive about more quantitative policy.