Dr Dave on … predicting the macro
Dr. David Allen

A close friend of mine, Soros Family Office alumnus and founder of Conduit Capital Jack Dwyer once said to me that the best way to anticipate the macro is to look at the micro…

Indeed, one of the leading indicators we watch at Plato are the monthly purchasing manager indices. These are compiled from granular surveys of supply-chain managers at private sector manufacturing firms. These managers buy the materials needed for the company to manufacture products and are an excellent gauge of changes in prevailing demand.

In the US for example, the PMI is based on surveys of over 400 companies across 19 industries. A reading above 50 indicates expansion, and a reading of less than 50 indicates contraction.

The heat map below shows country PMIs since March, 2021. European countries are shown at the top, followed by North America, Asia, Japan, and Emerging Markets at the bottom.

Business confidence is clearly beginning to slide in almost every country with PMIs now below 50 in the majority of countries compared to only two countries twelve months ago. The weakness is broad-based across developing and emerging markets.

How well though, does the PMI predict changes in GDP? The answer is, fortunately or unfortunately, depending on your perspective, quite well.

The below chart shows the US Manufacturing PMI overlaid with quarter on quarter changes in US GDP, clearly showing the leading behaviour of the purchasing managers index (which is also available far earlier than GDP figures). One might think we are not quite out of the woods yet!

US manufacturing

The most interesting takeaway perhaps is that this does not necessarily mean equity markets will also slide. In fact, in inflationary times like these, softer economic data reduces the pressure on central banks to raise rates, which tends to drive equity markets higher as we have seen over the last two months.

About the Author

Dr David Allen is head of Short/Long Strategies at Plato, managing the Plato Global Net Zero Hedge Fund. He holds a PhD from Cambridge and Bachelor of Business with First Class Honours.


This communication is prepared by Plato Investment Management Limited (‘Plato’) (ABN 77 120 730 136, AFSL 504616) as the investment manager of the Plato Global Net Zero Hedge Fund (ARSN 654 914 048) (‘the Fund’). Pinnacle Fund Services Limited (‘PFSL’) (ABN 29 082 494 362, AFSL 238371) is the product issuer of the Fund. PFSL is not licensed to provide financial product advice. PFSL is a wholly-owned subsidiary of the Pinnacle Investment Management Group Limited (‘Pinnacle’) (ABN 22 100 325 184). The Product Disclosure Statement (‘PDS’) and Target Market Determination (‘TMD’) of the Fund are available via the links below. Any potential investor should consider the PDS and TMD before deciding whether to acquire, or continue to hold units in, the Fund.

Link to the Product Disclosure Statement
Link to the Target Market Determination
For historic TMD’s please contact Pinnacle client service Phone 1300 010 311 or Email service@pinnacleinvestment.com

This communication is for general information only. It is not intended as a securities recommendation or statement of opinion intended to influence a person or persons in making a decision in relation to investment. It has been prepared without taking account of any person’s objectives, financial situation or needs. Any persons relying on this information should obtain professional advice before doing so. Past performance is for illustrative purposes only and is not indicative of future performance.

Whilst Plato, PFSL and Pinnacle believe the information contained in this communication is reliable, no warranty is given as to its accuracy, reliability or completeness and persons relying on this information do so at their own risk. Subject to any liability which cannot be excluded under the relevant laws, Plato, PFSL and Pinnacle disclaim all liability to any person relying on the information contained in this communication in respect of any loss or damage (including consequential loss or damage), however caused, which may be suffered or arise directly or indirectly in respect of such information. This disclaimer extends to any entity that may distribute this communication.

Any opinions and forecasts reflect the judgment and assumptions of Plato and its representatives on the basis of information available as at the date of publication and may later change without notice. Any projections contained in this presentation are estimates only and may not be realised in the future.
Unauthorised use, copying, distribution, replication, posting, transmitting, publication, display, or reproduction in whole or in part of the information contained in this communication is prohibited without obtaining prior written permission from Plato. Pinnacle and its associates may have interests in financial products and may receive fees from companies referred to during this communication.

“A good decision is based on knowledge and not on numbers.”

Plato (427-347 BC)