- US remains on a slowing path
- Mixed data from Europe
- Ray of hope from China
US – NFP improves but the economy on the slowing path
The US NFP report for March printed a solid employment growth of 196k after a nightmare reading for February (33k). It was better than the ADP indicated but not as strong as ISM employment composites suggested. However, wage growth disappointed at 3.2% y/y and while it’s good for stocks on the surface, it might also be a sign of economic weakness. This for sure was presented by the ISM non-manufacturing report which slowed to 56.1 points in March and - while still high – it pointed to a continuous softening of the economic conditions in the US which we expect to continue this year.
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US wage growth disappointed – a clear negative for the greenback. Source: Macrobond, XTB Research
Europe – recovery or recession?
The data from Europe has really been radical this week. It started on a sour note as the German manufacturing PMI was downgraded to 44.1 points from an already dismal flash release of 44.7. Then non-manufacturing PMIs showed not only a stability but resilience of the broad economy with very impressive results from Spain, Germany and Italy (56.8, 55.4 and 53.1). However, ugly data on factory orders in Germany (-8.4% y/y) presents a question – will the manufacturing sector recover before it infects the whole economy? UK manufacturing PMI surged to 55.1 points but it was just because companies increased their inventories in a fear of Hard Brexit.
EURUSD remains low after a mixed set of data from Europe. Source: xStation5
Asia – markets surge on higher PMIs
All 4 PMIs from China improved, contributing greatly to market euphoria. Indeed, positive signs from manufacturing (Markit PMI rose to 8-month high of 50.8 pts.) are welcome, as it means the Chinese economy is not falling off a cliff. Markets read it as a repeat of 2016 when a recovery quickly translated into higher growth. This does not need to be the case now. Trade data next Friday will provide a good check on the largest Asian economy. Meanwhile in Japan the conditions remain weak: PMI barely nudged up, quarterly Tankan report deteriorated – especially in manufacturing and household spending increased by less than expected. So all in all it’s way to early to announce a recovery in Asia.
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