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US Macroeconomic Analysis

The purpose of this page is to publicly share a sample of the macroeconomic analysis carried out to generate themes and trade ideas to supplement the trading of our Global Macroeconomic investment programme. More detailed information regarding specific ideas will be shared on our Facebook and Twitter pages. Please note that the information below is not to be construed as investment advice.


The Manufacturing PMI has continued to make new highs off its low of 48.0 in December 2015. The December print of 54.7 is the strongest PMI reading since December 2014 (please see the chart below).


The strong reversal in the Manufacturing PMI lead US equities higher. After the low in the ISM Manufacturing PMI was printed in December 2015, the S&P 500 Index proceeded to bottom in the first half of February 2016 and is currently trading in excess of 20% higher. The chart below shows the correlation between the ISM Manufacturing PMI and the S&P 500 Index.


The ISM Manufacturing PMI suggests that there may still be more upside in the S&P 500 however this may hinge on the announcement of any policy details of the incoming President of the USA, Donald Trump.

Moving back to the details within the ISM Manufacturing Report, there are broad signs of strength that are worth noting. Firstly the New Order Index has gone on to make a new high since also forming a low in December 2015. The print of 60.2 in December 2016 is the highest since November 2014 (chart below).


The New Orders Index is often regarded as a good indication of the future direction of the overall PMI. On this basis, further strength in the Manufacturing PMI could be expected.

Finally, we are seeing a continuation in the recent uptrend in the ISM Prices Index. Driven by the improvement in New Orders (demand), despite the potentially deflationary implications of the strengthening US Dollar (USD), ISM Manufacturing Prices are moving convincingly higher (chart below).


ISM Manufacturing Report Summary

To summarise, the current rate of change in the ISM Manufacturing PMI and key sub indices, namely New Orders and Prices, implies that the rate of growth and inflation in the US manufacturing sector is accelerating. We have seen the implications of this in the financial markets. The S&P 500 recently made a new all time high (ATH) despite high yielding defensive stocks selling off. Long dated US Treasuries sold off heavily as capital flowed into risk assets.


Building Permits data remains within its uptrend from the post financial crisis low in early 2009. However, upside momentum has slowed over the last 18 months with permits fluctuating within a range (chart below).

US Building Permits (20 Years)

Something of particular interest is the YoY % Change in the Building Permits data. As shown in the chart below, the data is in a downward sloping channel from the 2012 high. We have seen a drop in the YoY % Change from 8.50% in September 2016 to a negative reading of -5.75% in November 2016, taking us back below the 20 period moving average. We may now see a move to the low end of the channel in coming months.

US Building Permits YoY % Change (20 Years)


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