Manufacturing activity in the eurozone strengthened sharply in October, beating expectations, according to “flash,” or preliminary, purchasing managers’ index (PMI) data. The region is growing at its fastest pace so far this year, having climbed to its highest reading since April 2014.
The news follows positive September readings in emerging European countries that we track closely, an encouraging sign that the continent’s economy might finally be picking up steam after an extended period of sluggish growth.
Hungary, volatile as always, was the largest gainer last month, leaping ahead 5.3 points to a nearly three-year high. Historically, the Central European country has bumped up when the transport sector, which represents a big share of production, gets a new large order.
I’ve written numerous times on why we monitor PMI. Unlike gross domestic product (GDP), which is a backward-looking indicator, PMI gives us a foreshadowing of manufacturing activity three and six months out. This is important for investors because as manufacturing accelerates, so too does demand for commodities and natural resources, helping to support prices.
Not only do we like to see the monthly reading come in above 50—the threshold separating industry expansion from contraction—but it’s exceptionally positive when the reading appears above its three-month moving average.
This was the case for all countries except Greece and Turkey, both of which shrank slightly in September.
All in all, I’m encouraged by the eurozone’s positive October PMI, even if it is preliminary. Whether you like it or not, ours is a global economy, and it’s impossible for any country, even one as strong as the U.S., to do all the heavy lifting alone. What we need now is synchronized global growth, and this is definitely a step in the right direction.
The Vanguard FTSE Europe ETF (NYSE:VGK) fell $0.26 (-0.55%) to $47.02 in Wednesday afternoon trading. Year-to-date, the largest ETF tied to European equities has fallen 5.71%.
Frank Holmes is the CEO and chief investment officer of U.S. Global Investors. Mr. Holmes purchased a controlling interest in U.S. Global Investors in 1989 and became the firm’s chief investment officer in 1999. In 2006, Mr. Holmes was selected mining fund manager of the year by the Mining Journal, and in 2011 he was named a U.S. Metals and Mining “TopGun” by Brendan Wood International. He is also the co-author of The Goldwatcher: Demystifying Gold Investing. More than 30,000 subscribers follow his weekly commentary in the award-winning Investor Alert newsletter which is read in over 180 countries.
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