The Purchasing Managers' Index (PMI) is a fundamental macroeconomic indicator, derived from a monthly survey of purchasing managers, offering a clear view of the health of the manufacturing and services sectors. This survey provides quick and relevant insight into future trends in production, new orders, inventories, and employment, making it a closely watched metric by analysts, investors, and central banks.

The golden rule for interpreting the PMI is the 50-point threshold. A reading above 50 signals economic expansion, reflecting optimism and growth in orders and production. Conversely, any value below 50 indicates contraction or a decline in activity. For instance, a persistent reading between 46 and 49 over 2-3 years would be a significant red flag, suggesting a chronic period of negative stagnation or a slow recession, where companies prudently avoid investment and hiring due to a sustained lack of demand.

In this context, the monetary policy of the FED has a deep and direct impact on the PMI's trajectory. By adjusting the interest rate, the FED influences the cost of credit across the entire economy: hiking rates (restrictive policy) makes credit more expensive and curbs investment, exerting downward pressure on the PMI, pushing it towards contraction (below 50). Conversely, lowering rates (accommodative policy) stimulates borrowing and spending, leading to an increase in the PMI towards the expansion zone.

Beyond interest rates, the FED's other crucial tool is Quantitative Tightening or QT, which involves shrinking its balance sheet by letting maturing Treasury and mortgage securities roll off without reinvestment. This action drains liquidity from the financial system and tightens financial conditions, having a similar, albeit more subtle, effect to rate hikes, placing further downward pressure on the PMI.

The anticipated decision by the FED on December 1st to end or significantly slow the QT program would be interpreted by markets as a signal of monetary easing, even if interest rates remain unchanged. Drawing less liquidity out of the market could alleviate pressure on financing costs and be viewed by purchasing managers as a supportive factor. Therefore, an end to QT, especially if it coincides with a PMI struggling below 50, could act as a catalyst for a future rise in the index, signaling a potential recovery of the sector back towards the expansion zone.

For me, it's a miracle that crypto managed to grow during this entire period of stagnation. From my point of view, the bull market hasn't started yet.

⚠️ NFA
#sanki