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Global PMI: Possible Opportunity for Mining Stocks

July 3, 2013

For the month of June, JP Morgan Global Manufacturing Purchasing Manager’s Index (PMI) showed a reading of 50.6 for global aggregate manufacturing around the world. A reading of this scale indicates no real change in the market, though the one-month reading brings potentially positive news for some investors.

JP Morgan Global Manufacturing PMI
click to enlarge

In addition to the overall PMI reading, investors should take note that for June, the one-month reading crossed above the three-month reading for the first time since September 2012. But what does this mean for the markets and your investments?

Historically when a “cross-above” has happened, it’s signaled higher prices for many commodities. Below is an interesting chart that reveals manufacturing PMI over a five-year span. You can see the economic scale move up and down throughout the months across several different countries.

Use the controls at the bottom of the image to pan and zoom

Download a large version of this chart

In the post-2008 era, SPDR S&P Metals and Mining ETF (XME) reacted positively to Global PMI cross-above events the majority of the time. On the individual stock level, 60 to 80 percent of the time we found that the PMI trend improved, at least one month prior (of course, excluding this time around).

PMI is a gauge of economic well being for the manufacturing sector, and we use it here at U.S. Global to help monitor a number of things. With one-month and three-month crossing data, we are able to pinpoint a possible opportunity for mining stocks. Energy and materials sectors also have historically shown a positive correlation to cross-above events.

Though we know the past does not predict the future, we find it important to always remember that even in a volatile market, there are trends that have led the way for positive prospects.

We would like to wish all of our readers a safe and Happy 4th of July from everyone here at U.S. Global Investors!

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

The Purchasing Manager’s Index is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.

None of U.S. Global Investors Funds held any of the securities mentioned in this article as of 03/31/2013.

Net Asset Value
as of 11/21/2014

Global Resources Fund PSPFX $8.37 0.20 Gold and Precious Metals Fund USERX $5.68 0.08 World Precious Minerals Fund UNWPX $5.11 0.08 China Region Fund USCOX $8.08 0.07 Emerging Europe Fund EUROX $7.40 0.03 All American Equity Fund GBTFX $33.25 0.15 Holmes Macro Trends Fund MEGAX $23.28 0.05 Near-Term Tax Free Fund NEARX $2.26 No Change China Region Fund USCOX $8.08 0.07