Stockbuilding cycle peak confirmed

• • • • An inventories indicator from business surveys suggests that an expected downswing in the global stockbuilding cycle is under way (see charts).
      • Full data confirmed a March fall in global manufacturing PMI new orders, with the decline echoed in national surveys (see charts).
      • The US March employment report likely overstates labour market resilience (see charts).
      • Still, recent economic news will have reinforced Fed hawkishness, according to a simple model (see charts).
      • A surprise jump in the Chinese NBS manufacturing PMI likely reflects a faulty seasonal adjustment (see charts).
      • Tokyo and Eurozone March core CPI inflation remained tame (see charts).
      • Eurozone unemployment fears are rising, while UK wage growth expectations cooled further in the March Bank of England DMP survey (see charts).

An inventories indicator from business surveys fell below zero, suggesting that an expected downswing in the global stockbuilding cycle is under way:

This suggests further underperformance of cyclical sectors into the cycle low, possibly in Q1 2027:

Suggestion: use any rally on favourable Gulf War news to reduce exposure.

Full data confirmed a March fall in global manufacturing PMI new orders, with the decline echoed in national surveys (ISM for US, NBS for China, Ifo for Germany etc):

Manufacturers are trying to pass on surging input costs:

US payrolls growth beat expectations but was flattered by favourable weather effects, according to San Francisco Fed analysis (h/t Mike Green):

Similarly, a fall in the unemployment rate is at odds with a further increase in consumer bearishness about the labour market:

Retail sales rose solidly in February but the six-month real rate of change remained negative:

ISM manufacturing new orders fell back, as had been signalled by the customer inventories index moving below 40:

Delivery delays surged, partly reflecting Gulf War disruption:

The fall in the unemployment rate and rise in ISM supplier deliveries pushed a simple model of the Fed’s historical reaction function further into the tightening zone:

The Chinese NBS manufacturing PMI rose sharply in March, in contrast to weaker S&P Global and Cheung Kong surveys:

The NBS PMI is supposedly seasonally adjusted but shows a strong tendency to increase in March, suggesting a much smaller underlying rise, with the “true” index level remaining below 50:

Tokyo March annual CPI inflation – an early guide to national numbers – remained tame:

So did Eurozone core inflation, while an energy-driven rise in headline is consistent with the ECB staff’s central case forecast:

Consumer unemployment expectations picked up further in Germany, Italy and Spain while remaining elevated in France:

UK wage growth expectations cooled further in the March Bank of England DMP survey, possibly contributing to Governor Bailey walking back prior hawkish messaging: