Europe heads mainly higher as data points to a roaring recovery

European bourses are moving broadly higher, extending strong gains from the previous session as optimism surrounding the economic outlook brightens.

Covid cases on the old continent are declining, lockdown restrictions are easing, and economic data is strengthening. There’s a lot to like about Europe’s position at the moment. The region appears to be mounting a powerful rebound from its technical recession.

Eurozone PMIs show growth

PMI data from the Eurozone showed the region remained firmly in expansion territory, helped by a strong rebound in the service sector. The service sector saw activity surge to 55.1 on the Markit/ IHS PMI gauge in May, firmly up from 50.5 recorded in April. The 50-level separates expansion from contraction. The composite PMI, which is considered a gauge of business activity, rose to 56.9 in May, up from 53.8 the previous month. Firm growth is evident in the region on the back of economies reopening and strong consumer demand.

Manufacturing, which has been impressively strong throughout the pandemic, is showing some signs of weakness in Germany. The manufacturing PMI eased to 64 from 66.2 in the previous month. While this is still an unquestionably solid figure, it was slightly weaker than expected as companies reported supply shortages curbing production. The supply bottleneck boosted factory input process at a record pace.

The overall outlook for the region is brightening as the vaccine drive continues to pick up, and the rebound in economic activity is gaining momentum.

In the equity markets, we are seeing small gains today. The Dax trades +0.2%, while the Euro Stoxx 50 is up 0.3%.

The FTSE is lagging its peers despite strong PMIs and surging retail sales, rounding off a solid week on the data front. Banks and miners are the leading cause of the drag on the FTSE, with the likes of Barclays, NatWest and Standard Chartered losing more than 1% each.

GBP bounds higher after a week of buoyant data

The pound is charging higher versus both the US dollar and the euro as upbeat data prints keep coming in. First up, UK retail sales roared higher in April as British consumers eagerly splashed the cash when the shops reopened after months of lockdown. Sales in April surged 9.2% month on month, double consensus estimates and the biggest rise since June.

Meanwhile, the rise in PMIs is the latest data point to indicate that the UK economy is in a much better place than it was even after the first Covid wave. The UK composite PMI, a gauge of economic growth, hit a record high in May as services threw open their doors and factories capitalised on the recovering global economy. The composite PMI printed at 62 in May, up from 60.7 in April.

The impressive numbers came after a week of buoyant UK macros indicators, suggesting the UK economic recovery is very much on the right track.

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Sophie Griffiths
Sophie Griffiths is a market analyst with OANDA, focusing on the UK and Europe. With almost 15 years of experience, she brings with her a deep-seated understanding of the financial markets, providing timely and relevant fundamental analysis across a broad range of asset classes.