Earnings downgrades by equity analysts slowed again in December, suggesting a further recovery in the G7 PMI manufacturing new orders index. The earnings “revisions ratio” – the difference between the proportions of estimate upgrades and downgrades, adjusted for seasonal variation – is only marginally below its long-run average and at a level consistent with a new orders reading above 50.


The US continues to lead the recovery in earnings and output momentum but Euroland is also improving at the margin, with a “surprise” rise in new orders in the December “flash” PMI manufacturing survey confirmed by a rebound in the revisions ratio.


Posts earlier in 2011 expressed concern about a Chinese “hard landing” but the judgement now is that risks are diminishing, reflecting a recovery in real money supply expansion. The Markit PMI new orders index remained weak in December but is not given weight here – the “official” PMI is more reliable and has displayed greater resilience, after seasonal adjustment. Korean exports to China ought to reflect any softness in domestic demand but picked up in the three months to November.