A weaker open in Europe this morning fooled many investors on the first day of the second quarter as indices quickly reversed course to trade significantly higher thanks to a big boost from some European PMI reports.
Quite often the end of the first quarter can see investors locking in profits which is quite often followed with long positions being re-entered into on the first trading day of the second quarter and this appears to be the case again today. European pre-markets suggested that this year was going to be different, trading around 1% lower shortly before the open but a number of encouraging European PMI readings brought about a quick reversal in markets to move them comfortably into the green.
The ease in which investors changed their tune shows what attitudes are like on the first day of April. While the PMI readings were encouraging, I’m not sure they warranted such dramatic market moves. On the bright side, the eurozone manufacturing PMI report showed the greatest increase in new exports orders in a year, with exporters attributing much of the improvement to the weaker euro. With the euro expected to remain weak and even weaken further, this bodes well going forward.
It was also the 21st consecutive month that we’ve seen a growth number in the manufacturing PMI, although it’s here that I become skeptical. We’ve spoken for much of the last two years about how weak the recovery in the eurozone has been, surely this must bring into question just how reliable the PMI is as a barometer of future economic performance. While I do still see this as encouraging, I think we may be getting a little carried away with what is only a survey, and not necessarily an overly reliable one either.
*The above charts came from the official eurozone Markit manufacturing PMI report. The full report can be found here.
The UK manufacturing PMI was in line with expectations at 54.4 but the encouraging aspect was the new export orders component, which rose to the highest level in seven months. The fact that the strong pound isn’t holding back export orders is a real good sign for the UK as this is always going to be a concern when other countries are weakening their currencies.
*The above charts came from the official UK Markit manufacturing PMI report. The full report can be found here.
There’s plenty more data to come from the US today, with the official final PMI and ISM manufacturing PMI being released. Alongside this we have the ADP non-farm employment change reading, which is expected to show 227,000 jobs being created in March. While this is meant to be an estimate of Friday’s non-farm payrolls figure, it can quite often being quite inaccurate so people only tend to pay attention when we see a significant difference to the forecast figure.
More importantly today will probably be the EUR crude oil inventories release. Oil prices have been on the decline again over the last week as the P5+1 continue negotiations with Iran on its nuclear program. Last night’s deadline was missed but negotiations are due to continue today and any agreement would see more oil being poured into an already flooded market. That additional supply is likely to weigh further on prices, if an agreement is reached. We’re already expecting another build of 4.2 million barrels today, although it should be noted that forecasts have fallen short – sometimes by a fair way – on nine of the last 10 occasions. The tenth was in line. This suggests there’s big downside potential in oil following the release, based on the recent trend.
The S&P is expected to open 1 point lower, the Dow 2 points higher and the Nasdaq 2 points higher.
For a look at all of today’s economic events, check out our economic calendar.
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