Good Morning from Europe ahead of an interesting week!

The Manufacturing gauges from Germany (PMI) and the US (ISM) failed to fully get out of the gates despite both market -and activity based measures pointing in the direction of a cyclical re-acceleration.

The question is whether PMIs have lost traction of the actual underlying trends with the ISM Manufacturing PMI in contraction territory since November 2022 despite the US economy performing strongly even in some Manufacturing sectors.The other potential explanation is that the AI-wave wreaks havoc with the classic understanding of the business cycle as the production/export pace of Semis have been rapidly on the rise since early 2023 with other sectors left on the platform.

Finally, it may also be that the delays on shipped-in components due to the lack of safe shipping lanes in the Red Sea is causing backlogs, why a “ketchup-effect” should be seen during the spring.

We find the truth to be a combination of AI and Red Sea related factors.

Chart 1: Where’s the semi-fuelled pick-up in manufacturing?