Economic activity contracted in October, for the seventh consecutive month, and for the twenty-third time in the last 24 months, according to the Institute for Supply Management (ISM)® Business Report.
Timothy R. Fury, Chairman of the Business Purification Committee, released today’s report, noting that the Devils Managers Index was 46.5% in October, down 0.7 percentage points from 47.2% in September. This is the lowest PMI reading in 2024. However, the macroeconomic continues to record in the fifty-fourth month after the contraction period in April 2020, with any index reading above 42.5% generally indicating macroeconomic development.
New orders remained in contraction territory, at 47.1%, one percentage point from 46.1% in September. The production index reached 46.2%, down from 3.6 percentage points from 49.8% in the previous month.
On the other hand, the price index returned to expansion territory, recording 54.8%, up 6.5 percentage points compared to a reading of 48.3% in September. The buy orders index recorded 42.3%, and 1.8 percentage points from 44.1% in September. The temperature in employment came in at 44.4%, up 0.5 percentage points in defense from 43.9% in September.
Supplier sales sales to New York in deliveries, recorded 52%, down 0.2 percentage points from 52.2% in September. As a result, a fast reading of 50% usually means deliveries, which is to be expected as the economy and demand improve. Shares recorded 42.6%, down 1.3 percentage points from 43.9% in September.
As for the new response indicators, they stood at 45.5%, up 0.2 points from 45.3% in September, while the import index in contraction territory remained at 48.3%, the same reading as in the previous month.
The impact of the ISM manufacturing PMI on currency value
Here’s how the ISM manufacturing PMI can affect the currency:
- 1. Market sentiment: A higher-than-expected PMI indicates that the manufacturing sector is expanding, which could boost investor confidence in the US economy. These positive sentiments can lead to increased demand for the US dollar as investors seek to invest in a stronger economy.
- 2. Interest rate expectations: Strong PMI data may prompt the Fed to consider tightening monetary policy, such as raising interest rates. High interest rates generally attract foreign capital, leading to a currency appreciation. Conversely, a weak PMI could lead to expectations of lower interest rates, which could lead to currency devaluation.
- 3. Economic Health Index: The PMI provides insight into overall economic health. A strong manufacturing sector often signals broader economic strength, which can positively impact the currency. A weak PMI indicates economic problems, which could weaken the currency.
- 4. Trade Balance Impact: The performance of the manufacturing sector can affect the trade balance. For example, if manufacturing is strong, it could increase exports, improve the trade balance and strengthen the currency. Conversely, weak manufacturing could lead to trade deficits, putting downward pressure on the currency.
- 5. Investor Behavior: Traders and investors closely monitor PMI reports for clues about future economic conditions. A better-than-expected PMI may lead to a higher market outlook for future economic performance, affecting the value of the currency as traders adjust their positions based on new information.
Overall, the ISM Manufacturing PMI is a crucial indicator that reflects the health of the manufacturing sector and can have a significant impact on the currency by influencing market sentiment, interest rate expectations and economic perceptions.
How to trade using PMI data?
Trading around PMI reports may be a strategic move for forex and commodity traders. Here are some tips on how to handle trading based on PMI data:
- Understand the PMI report
– Components: Learn about the key components of the PMI report, such as new orders, production, hiring, supplier delivery, and inventories.
– Historical context: Learn about the historical performance of the PMI and how it has affected the market in the past.
- Monitor PMI release dates
– PMI reports are released monthly and can create volatility. Make sure you know the release schedule and plan your trades around these dates.
- Market Outlook Analysis
– Forecast: Check market consensus or forecast to read PMI. An actual release compared to these forecasts can trigger market movements.
– Surprises: Be aware that the market is not only reacting to the absolute value of the PMI, but also how it compares to expectations.
- Prepare for fluctuations
– Pre-release situation: Some traders may position themselves ahead of the PMI release based on their expectations. Be careful, as this can increase the risk.
– Volatility after release: After the release of the PMI, the market can experience significant volatility. Be prepared for quick price movements and maintain a plan to manage your trades.
- Use technical and fundamental analysis
– Technical Analysis: Combine PMI data with technical indicators to identify potential entry and exit points. Look for patterns, support and resistance levels, and trend signals.
– Fundamental analysis: Consider the broader economic context. For example, a strong PMI may be bullish for the currency if it is in line with the positive economic outlook, while a weak PMI may be bearish.
- Risk Management
– Stop Loss Orders: Use stop-loss orders to protect against unexpected market movements.
