The PMI data out of Europe was very good yesterday. Remember that PMI’s are seen as a leading indicator for economies. Yesterday’s PMI’s show us that the general mood is optimistic. European nations look set to re-open their economies and the PMI data shows that hopes of a V-shaped recovery are very much alive. Here are a few points to note from Germany’s PMI data points via Bloomberg:
- General business activity is moving towards stability. It only fell by the smallest amount since the start of the COVID-19 outbreak in March. Readings from the Services business activity and manufacturing production show the same rates of decline.
- Where activity was falling there were reports of COVID-19 related uncertainty weighing on demand levels and this also led to contracts being delayed/canceled.
- Some firms were noting pent up demand from the lockdown period as businesses are re-starting production.
- The latest new order level falls have been the shallowest in the last four months. New Export business showed signs of steadying, but the rate of decline was faster than the of total new orders.
- However, firms are still on the backfoot with payroll numbers being reduced for the fourth month in a row. The general fall in employment continues to be led by the manufacturing sector.
- The average charges for goods and services fell for the fourth month in a row.
- Finally, business expectations turned positive for the first time in four months in June.
Taking the PMI’s as a whole yesterday the anticipated rebound was there. Take a look at the data below you can see that expectations were exceeded. In particular, look at France’s PMI data which came in at over 50 (expansionary territory):
Furthermore, note that with the US showing a rise in COVID-19 cases the case begins to increase for the eurozone putting in a swifter recovery than the US. One key area on the charts is the descending EURUSD trend line. This is a key level for buyers to break through for the buyers to take near term control from the sellers.
One area to be aware of is that if we see any rejection of the Euro Recovery fund this will cap any further upside. Furthermore, any spike/concern over COVID-19 fears will strengthen the dollar on safe-haven bids and drag the EURUSD pair down further.