​​Stocks shrug off weaker China PMI figures – global index closes in on previous record high​

​First the US, and now China

​Within the past 24 hours we have seen signs of slowing activity in both the US and China, though yet another tariff pause extension (more TACOs, anyone?) supported sentiment.

​Yesterday’s US Institute of Supply Management (ISM) Purchasing Managers’ Index (PMI) fell for a third consecutive month, indicating shrinking activity (or ‘contraction territory’). Overnight, the China Caixin PMI gauge of manufacturing fell into contraction territory too, having been expected to rise slightly.

​These are signs that the global economy is beginning to slow down thanks to the impact of tariffs. But stock markets haven’t been too bothered, partly because the US administration extended its pause on fresh tariffs on some Chinese goods to 31 August.

​Data-heavy week keeps sentiment in check

​As earnings season winds down in the US, the focus shifts back to economic data. Yesterday’s US manufacturing PMI is followed tomorrow by the ISM services PMI and the first indications of jobs data in the form of the monthly ADP employment report. 

​Thursday sees the European Central Bank (ECB) issue its latest decision, and is expected to cut interest rates by 25bps points. The week culminates in the official US payrolls report, and the focus will be on whether this datapoint is also beginning to show hints that the US economy is weakening due to the impact of tariffs. 

​Global stocks close to previous highs 

​The most remarkable feature of the past six weeks has been the resilience of the global stock market. The shock of April has given way to renewed optimism, exemplified by the All Country World Index closing in on the record highs seen in February. 

​ACWI chart

​Investors who managed to avoid panicking at the lows in April, and were able to hold their nerve throughout the extended volatility around tariffs, will be content that their long-term strategy remains intact.

​The index has delivered an annualised return of 13.1% including dividends over the last five years, or 85% overall. While the risk of a global recession remains substantial, the longer-term picture suggests the potential for additional upside.