Global Flash PMIs, and the Return of Investor Optimism?

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At the end of the latest WEF meeting in Davos, many of the leaders there were optimistic that the world will avoid recession. Or, at least, if there was a recession, it would be short and shallow. Much of that optimism hinged on an expectation that China would bounce back now that it has lifted Covid restrictions.

The meeting came on the heels of the latest GDP figures from the world’s second largest economy, which came in well above expectations. That helped offset some of the negativity that would have been expected when the U.S. reported slower-than-expected industrial growth. So, it begs the question: Do major investors see this as the bottom line? Or is there an additional disadvantage?

What to watch out for

One of the tracks could be in PMI data, to see where previous trends in the economy are going. Over the past few months, most major economies have reported PMIs below the 50 level, which indicate a contraction. But the latest consensus shows that this indicator may be starting to rise again, especially in Europe.

Europe’s ability to keep up with energy demand helped boost optimism in the shared economy, with stocks moving to 9-month highs. If PMI were to move above 50, it could give further impetus to the notion that the ECB will continue hiking and support the Euro. Meanwhile, if PMI in the US shows a similar trend as industrial data, it could weaken the greenback.

Key data points:

Australia’s Manufacturing PMI is expected to fall to 49.5 of 50.2, entering contraction for the first time since the pandemic. This despite reports of a thaw in relations between Canberra and Beijing, which are expected to boost trade. Services, on the other hand, are expected to rise although remain in contraction at 47.5 compared to 47.3 previously.

The French Manufacturing PMI is expected to improve to 49.7, up from 49.2 prior. That is only marginally in contraction. France is the first major EU company to report, and then could set the tone for optimism if the result came above expectations. Services PMI is expected to do even better at 49.8, up from 49.5 previously.

Germany’s Manufacturing PMI is also expected to improve, but will remain in worse shape than France, at 47.8 compared to 47.1 prior. Services, on the other hand, are expected to almost return to expansion at 49.6 compared to 49.2 previously. The latest news on German energy reserves has been positive, but recent days have seen cold weather in Europe, with expectations that it could continue. Coinciding with the PMI survey, this could dampen optimism among executives in Europe’s largest economy.

UK Manufacturing PMI is expected to stage a marginal improvement although remains firmly in contraction at 45.5 compared to 45.3 previous. The constant strikes and reports that even more are expected in February have contributed to pessimism in the industrial sector. Services, on the other hand, are expected to remain in contraction through the bare minimum at 49.9.

US Manufacturing PMI is forecast to remain firmly in contraction at 46.2, unchanged from December. Services PMI is expected to show a marginal improvement to 45.0 from 44.7 previously. A beat on expectations would come as a bigger surprise to markets, given how much other data has been bearish.

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