Great Graphic: International Comparison Composite PMI Readings

These reports typically track economic activity fairly well and have become important for both investors and policy makers.

In recent months, the ECB has frequently cited the survey data to confirm the recovery in the euro area. That said, we are sensitive to the gap that some times open between the survey data and real economic data. Currently, euro area PMI data appears to be running ahead the real economy.

In any event, the chart captures several important thematic points that have developed. First, is the six quarter contraction in the euro area has ended. However, the expansion is shallow and fragile. Stagnation may be a better characterization for the state of the regional economy.

Second, the recovery in the UK economy is evident in the composite PMI. We are a bit skeptical of the UK's ability to maintain the momentum and suspect sterling is vulnerable to disappointing data as attention turns to the next batch of PMI data.

Third, the US PMI data suggests the economy may be poised to re-accelerate after the slowdown earlier this year. That said, in order for the Fed's new forecasts to prove accurate the US economy needs to grow a little more than 3% in Q4, which seems unlikely. This means there is some risk that it is forced to revise down again its 2013 growth forecast at the December FOMC meeting, which is when a Bloomberg poll found a slight majority expect the tapering to be announced. Color us skeptical.

Fourth. the PMI data suggests the Chinese economy is stabilizing However, the upside lift has thus far been quite subdued. To the extent production has been holding up, it appears to be coming at the cost of rising inventories. The improvements in the US, UK and euro area composite PMI relative to China's is emblematic of a new emerging theme: the recovery of the high income economies relative to the lower income countries.

This has also corresponded with general outflows from emerging equity and bond markets. Earlier this year, the equity funds seemed to move from the emerging markets to the US and Japan. Since the PMI data has flagged the recovery in the euro area and the Fed had begun talking about tapering, the flows from the emerging markets appeared earmarked for Europe. The latest fund tracking data shows European equity funds have recorded net inflows for the past thirteen consecutive weeks.