Market movers today
As the Chinese New Year has kicked off, markets will continue to pay close attention to headlines regarding the spreading of the corona virus. Later this week Chinese PMI figures (Friday) will be closely watched for any potential negative impact already showing up in service sector activity.
We start the week in a quiet manner on the data front with the German IFO index for January released today. In light of a further rebound in the ZEW and PMI numbers last week, we expect IFO to chime in with the signal that the gloomy skies over Germany’s manufacturing sector are brightening.
Later this week, we look forward to the FOMC (Wednesday) and Bank of England (Thursday) meetings and European inflation figures (Friday).
Selected market news
On Friday, PMIs recovered in the euro area and UK. In the euro area it was primarily driven by strong German figures. Here service activity profited from another marked increase in the incoming new business and employment indices while business expectations remain on a high level. Similarly, we got good signals on the manufacturing front with an improvement in the new orders index helped by a further improvement in export order books. In the euro area as a whole, manufacturing surprised on the upside and is now back at the highest level since April 2019. The service sector eased a bit, on the back of French pension reform protests, but remains solid. With the January figures, German composite PMI stands at 51.1, now slightly above the euro area at 50.9. In the UK, PMIs also surprised to the upside, giving some relief to the economy that has been struggling recently. We still expect a cut from the Bank of England at the end of the month, but it is a close call now. The US manufacturing PMI disappointed with a 0.7 point decline to 51.7. The service PMI on the other hand increased by 0.4 to 53.2.
Over the weekend the corona virus has spread further with more than 2,700 people infected and 80 dead as of this morning. A handful of cases of infection has been reported in other countries, including France, the US and Japan. China has extended its New Year’s holiday until 2 February in efforts to curb the virus and airports around the world have stepped up screening of passengers from China. However, with about 5 million residents leaving the city of Wuhan (where the virus originates) before the government shutdown of the city on Thursday, the job of containing the epidemic seems considerable. The fact that the virus is infectious even during its incubation period (of 1-14 days) complicates it even further. This was not the case with SARS, which killed more than 800 people back in 2003. Japan’s Nikkei index is down 1.8% this morning and S&P futures opened down 1%. US crude futures plummeted more than 3% and hit a three and a half months’ low.
In the regional election in Emilia-Romagna, polls suggest Matteo Salvini suffered a setback in his efforts to trigger a collapse of Italy’s government, as the centre-left Democratic Party looks to cling to power.
