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Is the Trade War Hampering the Global Services Sector?

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Global services PMI

On June 5, JPMorgan Chase, IHS Markit (INFO), the Institute of Supply Management, and the International Federation of Purchasing and Supply Management released May’s consolidated services PMI (purchasing managers’ index) data for 22 countries, which accounted for ~76% of the global services sector.

The global services PMI came in at 51.6 in May compared to 52.7 in April. While this data points to 118 consecutive months’ worth of expansion in global services business activity, the pace of growth is at its lowest in almost three years.

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What led to the fall?

The US, which accounts for 21.6% of the world’s GDP, and China, which accounts for 12.7%, led the fall in the global services PMI. US services PMI data showed that business activity growth slowed to a 39-month low with a PMI reading of 50.9 in May. China’s May services PMI was at a three-month low of 51.5. Japan and India, which together account for 11% of the world’s GDP, also saw their services business activity slow in May.

While most components remained in the expansion zone, the backlog of work showed a contraction in May. Optimism about the future also dipped in May as confidence in the US, China, Japan, and Europe dropped. On a positive note, optimism increased in India, the United Kingdom, Australia, and Brazil.

Your portfolio

PMI is considered a leading economic indicator. With the global services PMI reading falling, we may see a global economic slowdown in the coming months. Central bankers around the world are also becoming dovish. Including ETFs such as the iShares US Treasury Bond ETF (GOVT), which invests in government bonds, in your portfolio may help you cut the risk and generate alpha.

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