European shares soar as economic recovery ramps up

European stocks are charging higher, boosted by optimism surrounding the economic recovery in the region.

Data revealed that Eurozone manufacturing activity expanded at its fastest pace on record in June as the economy continued to recover from the third wave of Covid. The region’s recovery has clearly ramped up a gear, despite price pressure also increasing.

The IHS Markit manufacturing PMI for June revealed a final reading of 63.4, up from 63.1 in May and above the initial 63.1 reading.

Demand has been strong as economies reopen. Factories increased their headcount as the fastest clip since records began, which bodes well for the economic outlook. However, prices also surged, keeping lingering concerns over rising inflation present.

The Covid impact on global supply chains has been tremendous, affecting input prices in an unprecedented manner. The input price index surged to 88.5 from 87.1, the highest level in the survey’s history. The data comes after Eurozone inflation eased in June for the first time in nine months. However, the manufacturing PMI data points to further increases in consumer prices down the line.

The FTSE is putting in a notable performance, as upbeat earnings have helped investors look past rising Covid cases and disappointing Chinese manufacturing data. The Caixin manufacturing PMI revealed 51.3, below the 51.8 forecast, although the market seems unfazed.

Looking ahead, US futures are advancing after Wall Street’s mixed close on Wednesday. Better-than-expected ADP payroll data failed to drive gains across the board – a mean feat given the lofty levels at which stocks are trading.

Today, all eyes will be on US ISM manufacturing PMI, particularly the prices subcomponent, given the recent spike in inflation. The paid prices index is expected to inch lower to 87 in June, down from 88. Jobless claims and the Challenger jobs report will provide further clarity on the health of the US jobs market ahead of tomorrow’s key non-farm payrolls.

FX – USD at three-month high

The US dollar is trading at the highest level since April. As such, investors are closely anticipating tomorrow’s jobs data, looking for further clues as to where the Federal Reserve may take monetary policy. While inflation has very much taken centre stage in recent months, the US labour market recovery has seen fewer fireworks.

The Fed has insisted that more progress needs to be made in labour market recovery before it will tighten monetary policy. Yesterday’s ADP data revealed that the 692k private-sector payrolls, ahead of the 600k forecast, are adding to signs labour market recovery is well on track.

The pound is underperforming its major peers after BoE Governor Andrew Bailey poured cold water on optimism surrounding tightening monetary policy and following a slightly disappointing manufacturing PMI print.

BoE’s Bailey is notably less hawkish than outgoing Andy Haldane, reiterating that the spike in inflation would be temporary, in sharp contrast to Haldane’s 4% inflation fears.

For a lookat all of today’s economic events, please check out our economic calendar at www.marketpulse.com/economic-events/

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