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European Manufacturing and Services PMIs

European Manufacturing and Services PMIs

The global economy continues to make faltering steps to reopen following the three-month coronavirus lockdown. The question for everyone now is just how much damage has been done to individual economies as support measures begin to be scaled back and as individuals are encouraged to return to work. Unfortunately, many workers won’t have jobs to go back to. There have already been some high profile corporate failures, and we can all see the gaps on every high street after retailers shut down with many unable to reopen. That’s just the obvious damage. Some companies and small businesses may struggle on. But as government support is reduced further, there’s a worry that many will still fail. At the very best, most will return to trading with fewer staff members.

On the other side of the equation, businesses need customers. The thinking throughout the crisis, at least from the perspective of traders and investors, is that we’ll see an explosion of pent-up demand from consumers once the lockdown is relaxed. If the queues seen outside Ikea and garden centres recently are any guide, then there could be some truth in this. But it doesn’t tell the whole story. Job losses look likely to rise. On top of that, many people remain fearful of venturing out, whether to ‘non-essential’ shops or on public transport. Add in the demands of childcare thanks to the confusion over school reopening, and it looks as if the economic damage wreaked by Covid-19 will be with us for years to come. Again, the recovery in global stock markets would indicate otherwise, although as it is often said, the stock market is not the economy.

The above is a sketch of the situation in the UK, but it’s a similar story across the Euro zone. On this score, we will get more information this Tuesday morning when we see the release of Manufacturing and Services PMIs from France, Germany and the Euro zone itself. These PMIs (Purchasing Managers’ Indices) are important economic releases. They are leading indicators of economic health. Businesses react quickly to market conditions and purchasing managers can have the most current and relevant insight into their company's view of the economy. Inevitably the focus will be on Germany, the region’s manufacturing powerhouse. In April, Germany saw its Manufacturing PMI plummet to its lowest level since the Great Financial Crisis over ten years ago while Services almost dropped off the chart. Both recovered a touch in May and there are hopes of a further rebound for both with this latest update. But it’s worth remembering that Germany’s manufacturing sector has been contracting since the beginning of 2019 ad the US/China trade dispute heated up. That issue is still rumbling away, and Covid-19 certainly isn’t helping. Equity markets may continue to shout the ‘all clear’ but so far, the data isn’t supportive.

Data dashboards

On that subject, we’ve been mining the data inside our Smart News widget. Through an analysis of social media posts, we can see that the ‘hype’ ahead of Tuesday’s data is non-existent. This is surprising. In every instance going back to last August we see a spike in social media mentions ahead of the data release. You can see this in the blue line in the top chart. The bottom chart puts this into perspective by showing the decline in interest ahead of the event.

Why should this be? One suggestion is that investors and traders just don’t care about the data. Maybe they feel it’s far too noisy currently given the huge slump we saw in April and May. Also, a quick glance at the major stock indices shows how market participants haven’t waited for confirmation of an economic recovery before hoovering up equities, believing that the worst is over. So, it’s going to be interesting to see what happens on social media following the release of the data. The general consensus is that there will be a sharp recovery in Manufacturing and Services PMIs for France, Germany and the Euro zone as a whole. However, all the expected numbers suggest continued contraction for all areas in both sectors. While better-than-expected data should provide further encouragement for stock market bulls, it remains to be seen if the rally can continue if the numbers disappoint. Then we’ll see whether or not the data is beginning to matter again.

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