4 August - update from our investment partner

  • 4th August 2020

With PMI surveys beating market expectations, what impact does this have?

What has happened

The PMI surveys beat market expectations on both sides of the Atlantic allowing European and US indices to both rise. US Technology hit all time highs yet again as the improved economic outlook was absorbed in the context of a strong earnings quarter for the sector.

PMI Surveys beat expectations

As a brief refresher, the Purchasing Managers’ Index (PMI) is simply a survey sent to executives across a range of companies which are then weighted according to their contribution to GDP. The survey attempts to gauge the overall path of travel by looking at elements such as new orders, production levels and employment. The PMIs typically come in three flavours: services, manufacturing and composite (services and manufacturing combined). The readings generally showed more economic momentum in Europe than the US, albeit the US figures were also better than the market had expected. A theme has been a weaker employment component of the survey which is something policy makers will be watching closely given the knock-on impacts on the wider economy.

Viral update

Whilst in absolute terms the US continues to represent around one quarter of global daily new cases, the situation in the hot spot states is improving with states such as California seeing the fewest new cases in 4 weeks. The market focus has moved to Europe in recent days with news that Norway is banning cruise ships from entering ports and the UK are fine tuning their plans for regional lockdowns including a leaked suggestion for London containment. The numbers across Europe are showing a marked increase with France reporting over 3,000 new cases yesterday, Spain over 8,500 and the UK approaching the 1,000 mark.

What does Brooks Macdonald think

The pick up in European cases will put governments’ reopening plans in jeopardy and given the piecemeal approach to travel restrictions it is unlikely that the geographical spread will be contained. A lot of the relative strength in the PMI surveys reflects the fact that Europe had a far deeper lockdown and therefore avoided the near term viral pick up that the US is currently dealing with but also had a lower starting point to bounce back from. Should a second wave become entrenched in Europe we would expect the region to underperform yet again as investors recognise that the EU recovery fund will only start providing support next year.

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