Purchasing Managers’ Index (PMI): Impact on Indian Share Market
Purchasing Managers’ Index (PMI) measures the economic condition of the country.
The data is based on five major topics relevant to manufacturing business:
1) New orders (30%)
2) Production (25%)
3) Employment environment (20%)
4) Supplier deliveries (15%)
5) Inventory levels (10%)
PMI data more than 50 tells that there is an expansion in the manufacturing sector as compared to the last month. Less than 50 reading tells that there is a contraction in the manufacturing sector as compared to the last month. Data equal to 50 indicates no change.
A higher than expected reading should be taken as positive or bullish for the USD, while a lower than expected reading should be taken as negative or bearish for the USD.
PMI data is important for decision-makers of different sectors for multiple purposes
Indicators That Impact India Stock Market
Example:
An automobile manufacturing company makes production decisions based on the new orders it expects from customers in the coming months. So, they take an idea about upcoming new orders from PMI data.
Similarly, the company who supplies the parts of automobiles also makes decisions based on PMI data to make the assumption about future demand.
Effects of PMI data of Major Countries on Indian Equity and Commodity Market:
US Purchasing Managers’ Index (PMI): Impact on Commodity Market (Gold)
In the USA the Institute of Supply Management (ISM) generates the PMI each month.
Here data is better than forecast and just after the release of data Gold show a downward movement.
In the above chart, you can clearly see that US Purchasing Managers’ Index data on 23rd April 2018 is positive as it is better than forecast.
US Purchasing Managers’ Index on 23rd April 2018 is 56.5 which were better than forecast (55.2) and previous (55.6). The data implied that there was an expansion of the U.S. manufacturing sector as compared to last month and this is taken as positive or bullish for the USD.
As we know that Commodity market (Gold, Silver, etc) react inversely to the USD. So, in the above chart, you can clearly see that just after the data release gold moved to a negative trend.
Here data is lower than forecast and just after the release of data Gold show an upward movement.
In the above chart, you can clearly see that US Purchasing Managers’ Index data on 23rd April 2018 is negative as it is lower than forecast.
US Purchasing Managers’ Index on 02nd April 2018 is 55.6 which were lower than forecast (55.7) and previous (55.7). The data implied that there was a contraction of the U.S. manufacturing sector as compared to last month and this is taken as negative or bearish for the USD.
As we know that Commodity market (Gold, Silver, etc) react inversely to the USD. So, in the above chart, you can clearly see that just after the data release gold moved to a positive trend.
Note: The impact of US Purchasing Managers’ Index (PMI) data on Commodity is for a very short period of time. As shown in the above chart.