Market Outlook - BNP PARIBAS - Investment Services India

Key Data Preview
Chart 11: US PMI Manufacturing Surveys
Source: Reuters EcoWin Pro
Jan (f) Dec Nov Oct
Headline index 55.5 55.9 53.6 55.7
Prices Paid 60.0 61.5 55.0 65.0
BNP Paribas Forecast: About Steady
US: ISM (January)
Release Date: Monday 1 February
We look for the ISM manufacturing index to edge down to
55.5 in January after rising to 55.9 in December. Regional
manufacturing indexes sent mixed signals in January, and
on average have remained weaker than the ISM (see
chart). Thus we expect the index to give back a bit of its
December surge.
Our forecast would still be consistent with robust expansion
in the manufacturing sector as rising global trade and the
upswing of the inventory cycle stimulate activity. Inventory
data in particular have turned decisively positive in recent
months, indicating a fairly significant contribution to GDP
from manufacturing production. Meanwhile, we look for the
prices paid index to fall back to a still-elevated 60.0 from
61.5 a month prior, in line with the drop in commodity
prices at the start of the year.
Key Point:
The ISM manufacturing index should edge down to
55.5 in January after surging in December. Prices
paid should edge down to a still-elevated 60.0.
Chart 12: UK CIPS Services vs FTSE All-Share
Source: Reuters EcoWin Pro
Jan (f) Dec Nov Oct
55.5 56.8 56.6 56.9
Key Point:
We expect a temporary setback for the CIPS
services, largely due to the adverse winter weather.
BNP Paribas Forecast: Down
UK: CIPS Services (January)
Release Date: Wednesday 3 February
We expect a snow-induced setback for the services sector
CIPS during January. The prolonged spell of snowfall in the
early portion of the month caused many parts of the
country to come to a standstill. We estimate that employee
absence, shorter working days, transport disruptions etc
will subtract around 0.1 percentage point from Q1 GDP. To
be consistent, this would require the CIPS surveys to
temporarily lose upward thrust.
We are confident that this will be a temporary setback. The
fundamentals that have underpinned the impressive
rebound in the CIPS surveys remain in place, i.e. equities
have bounced back, monetary policy remains very loose
and the GBP exchange rate has weakened over the last
year or so. At some point, these supports to activity will
fade, but for now we expect them to continue pushing the
CIPS surveys higher.
To be consistent with the latest BoE GDP projection, the
composite of the two CIPS surveys will need to reach
around 58 from 55.7 currently. We suspect that it can do
so, but such a level will be short-lived. Thereafter, once
stimulus measures fade, a lower survey reading and slower
pace of GDP expansion are more likely.
Market Economics 29 January 2009
Market Mover 22 61
www.GlobalMarkets.bnpparibas.com