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In what might be the most important monthly data release for investors in commodity stocks, the JPMorgan Global Manufacturing PMI Index was reported 1.5-per-cent higher, year over year, at 53.5 on Wednesday.

The index collects survey results from prominent manufacturing companies worldwide. Each company is asked a series of questions covering current levels of activity, hiring and new orders for products. A reading of 50 indicates no change from the previous month, levels above 50 indicate improvements in business activity.

The accompanying chart illustrates the close relationship between global manufacturing growth and base metals prices. The year-over-year changes in the S&P Goldman Sachs Industrial Metals Index is matched by similar but smaller changes in manufacturing levels.

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A WELCOME UPTICK

S&P GSCI Industrial Metals Index,

year-over-year percentage change

JPMorgan Global Manufacturing PMI,

right scale, year-over-year percentage change

50%

8%

40

6

30

4

20

2

10

0

0

-10

-2

-20

-4

-30

-40

-6

2014

2015

2016

2017

’18

THE GLOBE AND MAIL,

SOURCE: SCOTT BARLOW, BLOOMBERG

A WELCOME UPTICK

S&P GSCI Industrial Metals Index,

year-over-year percentage change

JPMorgan Global Manufacturing PMI,

right scale, year-over-year percentage change

50%

8%

40

6

30

4

20

2

10

0

0

-10

-2

-20

-4

-30

-40

-6

2014

2015

2016

2017

’18

THE GLOBE AND MAIL, SOURCE: SCOTT BARLOW, BLOOMBERG

A WELCOME UPTICK

S&P GSCI Industrial Metals Index, year-over-year percentage change

JPMorgan Global Manufacturing PMI, right scale, year-over-year percentage change

50%

8%

40

6

30

4

20

2

10

0

0

-10

-2

-20

-4

-30

-40

-6

2014

2015

2016

2017

’18

THE GLOBE AND MAIL, SOURCE: SCOTT BARLOW, BLOOMBERG

Investors in base metals-related miners will be happy to see the year-over-year uptick to 1.5-per-cent improvement for the manufacturing index. The annual change in the indicator had been deteriorated quickly, falling from 5.8 per cent in February, 2017, to 0.9 per cent in March of this year. Metals prices continued to see gains for the same period, but the growth rate for metals prices went from 28.9 per cent to 11 per cent.

The good news is that both lines on the chart remain in positive territory with manufacturing conditions and metals prices continuing to expand. Negative year-over-year measures can indicate significant weakness in the commodity space. From November, 2014, to August, 2015, for instance, the metals index declined 22 per cent.

The global economic backdrop remains constructive for mining investors, but a dip below zero for the global manufacturing index should be taken seriously as a warning of potential commodity price declines.

Scott Barlow, Globe Investor’s in-house market strategist, writes exclusively for our subscribers at Inside the Market.

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