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Euro zone’s PMI jump: Signs of economic recovery

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June’s flash purchasing manager’s index (PMI), which was released yesterday, came in at 47.5, up from May’s reading of 31.9. The PMI measures the activity in both the services and manufacturing sector in the euro zone.

Following the COVID-19 outbreak, the economic sentiment within Europe crashed, with the PMI falling to 13.6 in April. The PMI is based on a monthly survey sent to senior executives of large corporations. It ranges from 0 to 100, with a figure above 50 representing an expansion over the previous month, conversely a reading below 50 represents a contraction.

The 15.6-point increase was the second largest in the survey history, with May’s 18.3-point rise currently the largest on record, as stated by IHS Markit in its data release. June’s PMI at 47.5 also exceeded previous expectations as polled by Reuters, which predicted the PMI to come in at 42.4. This reading illustrates that the euro zone continued to recover from its downturn as Europe emerges from the pandemic.

The PMI’s recovery is reflective of the easing of lockdowns around most European countries, which amongst other, include the opening of borders both to air and sea travel. The European summer tourism and the restarting of this industry is expected to aid the economic recovery, and help bring the recent downturn to an end as we head into summer. Investors will carefully gauge July’s PMI to determine the health and continuation of the euro zone’s economic recovery.

European Stocks reacted positively to this news with all major index ending the day in green, with the DAX (+2.1%), CAC 40 (+1.4%), IBEX 35 (+1.3%), FTSE MIB (+1.9%) and Euro Stoxx 50 (+1.8%). European stocks were also boosted following a clarification by Peter Navarro (US White House trade advisor), that the US – China trade deal is not over, following an interview where he was interpreted otherwise.

Meanwhile, the coronavirus pandemic still remains relevant to investors as the US and other countries continued to report a rise in new cases and hospitalisations. This confirms concerns raised by World Health Organization’s (WHO) director-general on Monday, where he stated, the novel coronavirus pandemic is still accelerating and its effects will be felt for decades. The WHO has also denied claims that increased testing is the sole driver behind higher case numbers.

Clusters are re-emerging around the globe, with the latest case being in Germany, which yesterday re-imposed lockdown measures in a district within the country’s most populous state, North-Rhine Westphalia, following a substantial outbreak near a slaughterhouse.

Despite the fact that the coronavirus pandemic is and will remain a threat to the health being of societies and economies (i.e. until a vaccine is identified and distributed), it is interesting to note that a substantial number of countries are taking a proactive rather than reactive approach. This includes the continuation of daily swabs and the re-imposition of lockdown measures on identified clusters.

This proactive stance will aid in mitigating potential repercussion from a second COVID-19 wave, which might possibly be worse than the first wave. Proactive measures will assist countries and economies to continue operations, rather than completely halt business activity due to crippled health systems.

The Calamatta Cuschieri Traders Blog is available daily on CC WebTrader. Other market coverage including coverage of the International Bond Markets is also available.

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