Comment: European Stocks Start Q2 On A Firm Footing; PMIs In Focus
April 1, 2014 7:45 am
Stocks in Europe kick off the second quarter of 2014 on a firmer footing thanks to overnight gains in US and Asian markets. Fed chair Yellen played dove this time around by saying that stimulus needs to stick around for some time. That could be seen as contradictory from her last message to markets about rate increases starting in 2015, much earlier than anticipated which lead the market to view her as hawkish – but then again, it’s perfectly reasonable for a central bank to raise interest rates six months after the end of QE – they have to, or else put the already inflated balance sheet of the Fed at further risk.
Yellen is not exactly backtracking but like her predecessor Ben Bernanke, she’s attaching adjustment to monetary policies heavily on the performance of the economy and not pre-set action based on threshold levels – that in many ways does play with market expectations but Yellen is adopting a prudent stance in which she reckons rate hikes will happen as early as next year, but that’s dependent on the performance of the economy, which although positive, requires further progress which could take some-time so accommodative measures remain in place.
Financial market participants are welcoming the dovish remarks by Yellen overnight but wait for the US nonfarm payrolls report on Friday before forming any conclusions about the state of the US economy – before that, we have US manufacturing data which will be eagerly eyed for clues about the health of the recovery in the US. Before that, we’ve been digesting PMI manufacturing data out of the euro zone, UK and China – to summarise, UK manufacturing PMIs were a bit softer but euro zone PMIs for March held up, in at 53, unchanged but it’s the breakdown of the numbers that warms sentiment.
Spanish and Italian manufacturing activity grew, beating market expectations – Spanish PMIs rose to 52.8 in March, the highest since April 2010 while Italy’s PMIs gained to 52.4; very encouraging numbers from both economies in which the worst of the crisis is certainly over and these two economies are starting to breathe again as structural reforms and government incentives feed through despite high unemployment rates in both countries. France also showed recovery in its PMI data edging into expansion zone and allying market concerns about the economy there – by contrast, Germany’s PMI number actually eased.
Euro zone unemployment data meanwhile showed the rate still at record higher at 11.9% in Feb., slightly off 12%. Germany’s unemployment data was the standout winner amongst euro zone peers, staying at a record low of 6.7% in March, unchanged from last month’s revised rate – attention is now firmly on the ECB on Thursday when it meets to discuss policies. For the ECB, it’s having to contend with deflationary worries in the euro zone but improving economic fundamentals for the periphery and France. It’s unlikely the ECB will act to adjust rates this week but more likely to reinforce forward guidance to battle deflation.
Over in Asia, China’s official PMIs rose to 50.3 in March from 50.2 in the prior month, but HSBC PMI reading for the month came in at an eight-month low of 48; markets tend to trust the HSBC figure over the official China report. Looking ahead, the focus is on US manufacturing PMIs and construction spending data releases.
Stocks in Europe kick off the second quarter of 2014 on a firmer footing thanks to overnight gains in US and Asian markets. Fed chair Yellen played dove this time around by saying that stimulus needs to stick around for some time. That could be seen as contradictory from her last message to markets about rate increases starting in 2015, much earlier than anticipated which lead the market to view her as hawkish – but then again, it’s perfectly reasonable for a central bank to raise interest rates six months after the end of QE – they have to, or else put the already inflated balance sheet of the Fed at further risk.
Yellen is not exactly backtracking but like her predecessor Ben Bernanke, she’s attaching adjustment to monetary policies heavily on the performance of the economy and not pre-set action based on threshold levels – that in many ways does play with market expectations but Yellen is adopting a prudent stance in which she reckons rate hikes will happen as early as next year, but that’s dependent on the performance of the economy, which although positive, requires further progress which could take some-time so accommodative measures remain in place.
Financial market participants are welcoming the dovish remarks by Yellen overnight but wait for the US nonfarm payrolls report on Friday before forming any conclusions about the state of the US economy – before that, we have US manufacturing data which will be eagerly eyed for clues about the health of the recovery in the US. Before that, we’ve been digesting PMI manufacturing data out of the euro zone, UK and China – to summarise, UK manufacturing PMIs were a bit softer but euro zone PMIs for March held up, in at 53, unchanged but it’s the breakdown of the numbers that warms sentiment.
Spanish and Italian manufacturing activity grew, beating market expectations – Spanish PMIs rose to 52.8 in March, the highest since April 2010 while Italy’s PMIs gained to 52.4; very encouraging numbers from both economies in which the worst of the crisis is certainly over and these two economies are starting to breathe again as structural reforms and government incentives feed through despite high unemployment rates in both countries. France also showed recovery in its PMI data edging into expansion zone and allying market concerns about the economy there – by contrast, Germany’s PMI number actually eased.
Euro zone unemployment data meanwhile showed the rate still at record higher at 11.9% in Feb., slightly off 12%. Germany’s unemployment data was the standout winner amongst euro zone peers, staying at a record low of 6.7% in March, unchanged from last month’s revised rate – attention is now firmly on the ECB on Thursday when it meets to discuss policies. For the ECB, it’s having to contend with deflationary worries in the euro zone but improving economic fundamentals for the periphery and France. It’s unlikely the ECB will act to adjust rates this week but more likely to reinforce forward guidance to battle deflation.
Over in Asia, China’s official PMIs rose to 50.3 in March from 50.2 in the prior month, but HSBC PMI reading for the month came in at an eight-month low of 48; markets tend to trust the HSBC figure over the official China report. Looking ahead, the focus is on US manufacturing PMIs and construction spending data releases.
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