Taking a close look at December, there are still two focal points left: at the beginning and in the middle of the month. Both will likely hold precious guidance on what is ahead in the final weeks of 2022 and beyond. This week, we have plenty of macroeconomic numbers to weigh against the backdrop of a slowing global economy.

Most prominent this week will be the leading indicators, such as purchasing managers’ indices (PMIs) on 1 December and the US employment report a day later. The second focal point will come two weeks later, when large central banks (e.g. the US Federal Reserve, the ECB, the BoE, and the SNB) issue their final rate decisions for 2022 on 14/15 December.

However, the overarching theme is a ‘cool-down’. Uncertainties around China’s reopening may play a role, but more importantly, the flash PMIs last week signalled a broad-based softening. The best indicators for economic activity over the next 3-6 months in both manufacturing and services show a slowdown in unison. Oil and bond markets confirm this view with their recent price action.

Oil prices have corrected by far more than 30% from their peaks in March of this year, and roughly half of this has occurred over the past few weeks only. This is mirrored by bond yields that have come down markedly from their YTD peaks only a month ago.

Finally, in mid-December the focus will be on central bankers giving their view on how the economic downside will affect their stance. Anything but a softer guidance on rates would come as a surprise. Before shutting down communication ahead of mid-December, there is a window of opportunity for them to tweak the tone in the many speeches scheduled for this week.

For investors, the days ahead will likely be supportive of locking in good-quality bond yields and taking profits in energy grades. China’s reopening fears may disrupt but not call off the year-end rally. The same holds true for European stocks.

A closer look at flash PMIs

The flash purchasing managers’ index for the eurozone showed tentative signs that the region’s economic slump may be easing. Eurozone manufacturing remains in a downturn for a fifth consecutive time but has improved unexpectedly in November.

At the same time, the downward pressure on the services sector seems to have at least stalled. While low readings still point to a bleak outlook for the eurozone, the latest improvements support our view that the downturn may be shallower than widely anticipated and a recession can be avoided. Even on the inflation front, some encouraging signs have emerged.

Still in Europe, UK private sector activity continues to face significant headwinds but has stopped deteriorating, with readings in both services and manufacturing staying the course from the previous month.

In other parts of the world, however, downward pressure has aggravated. The composite PMI for Australia and the US has fallen further below 50. In fact, manufacturing activity struggled in Australia and took a severe blow in the US, while pressure on the services sector remained high. In addition, Japan’s soft recovery has turned sour with the composite PMI deteriorating below 50 in November, as headwinds in the services sector have increased and manufacturing activity has fallen below 50 for the first time since January 2021.