May 21, 2020

US Futures And European Markets React To PMI Data

US Futures And European Markets React To PMI Data

In Europe, the optimism among investors has faded once again as investors digest growth forecast from the European Commission. The EC now expects the EU-wide GDP to plunge by -7.4% in 2020 against the previous forecast of +1.4%. The EU countries that are heavily reliant on tourism are likely to be hit the most. Of course, this can change the game if we do have a vaccine for coronavirus. Investors are hopeful that the new EU Recovery Fund will help to boost the economic growth in the Eurozone and countries that are under the influence of Coronavirus will get most of the aid.

The fresh euro-centric PMI data has given us more color about the health of the eurozone. This is an early indication of business activity returning to its new normal as governments within the EU scale back from their lockdown measures. However, looking at the economic numbers, the picture is still somewhat hazy, and it is still difficult to interpret the full output. This is because the lockdown remained in place for some countries during the early weeks of May.  But the fact that the overall output is better than the previous reading is encouraging signal for the eurozone’s growth.  

Plenty of Ink Spilled

Sterling is trading weak against the dollar today despite a muted reaction to the MPC leaving the door ajar for a negative interest rates yesterday. The MPC policymakers assured the markets yesterday that they will not hesitate to deploy unorthodox methods to stimulate growth in the UK. The bank is set to push the limits if there is any need for it.

Plenty of ink has been spilled to assess the merits of negative rates. The latest data indicates that lower borrowing rates (when the bank cut the interest rate from 0.75% to 0.1%) have had a muted impact on the cost of new loans. The bank is likely to expand its asset purchase program in June or August until the end of November, and if the economic weakness continues to linger, the bank will deploy all necessary measures. Until that time, it is expected that most of the work needs to be done by fiscal policies.

Later today, we will also get the UK’s PMI data that hit the all-time during last month and this month’s reading may show that we have formed a bottom.

Deteriorating Sentiment

Investors are concerned about the deteriorating relationship between the US and China. This has made many cast doubts about the recent rally in riskier assets. President Trump upped the ante yesterday by launching a direct attack on Chinese leadership. His tweet may have poked the bear  especially as the US Senate passed a bill that could stop Chinese companies from listing on American exchanges.

One Billion USD

In terms of corporate news, AstraZeneca Plc’s stock is likely to face higher volatility today because it received over 1 billion in US funding yesterday to develop a COVID-19 vaccine. A vaccine is seen as a way forward to get global economic growth back on track after a lockdown-induced slump.