Good times, bad times, you know I’ve had my share Led Zepellin

Markit global services Purchasing Manager Survey for May were unchanged from April, the Composite index rose very modestly from 51.2 to 51.5. As a result, the global economy has expanded in the 23rd straight month, with the rate of growth accelerating for the first time in three months, helped by lockdown restrictions in China easing.

Excluding China, the global composite PMI registered 54.3, indicative of a more impressive annualised GDP growth rate of 3.5%, according to the Markit report. Excluding the troubles, the world’s second-largest economy does flatter the numbers but also seems to suggest we should not be on the brink of an economic recession. We will have to see what China does in terms of stimulus measures to support its economy in the coming months. One thing the Chinese economy currently does not suffer from is inflation, currently around 1.5% year on year, unlike the rest of the world. Therefore they do have further room to help their economy recover. It is also worth bearing in mind that President Xi is hoping to be voted into a third term later this year. He has faced a rebellion due to his zero covid policy, so one would imagine will be keen to improve economic conditions. Markit goes on to add that “The release of pent-up demand as mainland China eases restrictions may bode well for overall demand and ease supply constraints”.

As the supply-demand debate goes on it was interesting to hear from Target Corporation, post the profits warning at their investor call as they made their official earnings release. Target revealed that profits would not meet expectations, not due to a lack of supply but a lack of demand. Prices will need to be cut and margins hit as they look to offload excess inventory. Walmart and Gap also have inventory issues as they try to dispose of items that have been popular during the past two years, but less so now as the economy opens up from Covid. They were not the only ones as Abercrombie and Fitch and American Eagle Outfitters inventories rose. Further possible evidence supply chains may be easing. The warmer weather may be helping gas prices ease, however, the price of oil remains at the top end of its range.

One fact that grabbed me the other day, the UK economy is possibly the 5th largest in the world. The UK stock market represents just 4% of a global equity index. Germany is even less than that, despite being one of the 10 largest economies in the world. America on the other hand represents over 60%. That must say something about how the capitalist system has worked in America, and the business philosophy.