Will European PMI data reveal coronavirus impact?

Growth in much of the eurozone economy has been sluggish in recent years. Now the export-dependent bloc has to deal with the economic fallout from the deadly coronavirus.

On Friday, IHS Markit will release composite purchasing managers’ indices — that combine manufacturing and services activity — for the eurozone and its two biggest economies, France and Germany. These will provide a snapshot as to how the region’s companies are faring and could offer an early clue as to how severe the impact will be.

January’s reading for the eurozone hit a five-month high, suggesting an upturn in the bloc’s fortunes, but February’s survey will give a much better picture of any fallout from China’s shutdown.

With inflation stubbornly low and growth still weak, particularly in Germany, the European Central Bank last year cut rates and restarted its controversial bond-buying programme. However, opinion is divided as to whether this monetary loosening will have much of a positive effect, particularly given how much stimulus the ECB has already injected.

Industrial production data last Wednesday offered little comfort. It showed a 2.1 per cent fall in the eurozone in December, and a 4.1 per cent drop for 2019.

“We’re looking at a period where growth [in Europe] is grinding to a halt,” said Tony Cousins, chief investment officer of Pyrford International.

The double hit of the coronavirus and disappointing economic data sent the euro to its weakest level in almost three years last week.

Meanwhile, IHS Markit will also publish a PMI for the UK on Friday. While economic growth has also been lacklustre, partly driven by uncertainty over its exit from the EU, the UK enjoyed an unexpectedly strong bounce in its PMI in January following the landslide election victory by Boris Johnson’s Conservative party. Laurence Fletcher

Will the Fed remain on hold throughout 2020?

On Wednesday, minutes from the Federal Reserve’s latest policy-setting meeting will be released. In January, the US central bank stood firm and left its main policy rate unchanged at a range of 1.5 to 1.75 per cent.

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Chairman Jay Powell underscored at the time that the US economy remained “in a good place” and that officials had not altered their plans to leave interest rates where they were until the end of the year.

Still, market participants took certain comments to be dovish, sending Treasuries rallying. Investors seized on Mr Powell’s disclosure that the Fed is “not satisfied” with inflation running so persistently below its 2 per cent target given the length of the current US expansion.

Moreover, Mr Powell’s warning about the potential impact of the coronavirus outbreak on economic growth further reinforced investors’ perception that the Fed might find itself cutting interest rates once again in 2020.

According to data compiled by CME Group, expectations for a quarter-point cut as early as July have risen in recent weeks — one meeting earlier than what traders were expecting at the start of the year.

Wednesday’s minutes will give further clarity as to where central bank officials stand on these issues, and if either inflation or China’s health crisis will change the US economic outlook by a sufficient degree to justify further easing.

In his testimony to Congress last week, Mr Powell said it might be too early to tell how much damage, if any, the coronavirus would inflict on the US economy. “It’s too uncertain to even speculate,” he said. “We’ll be looking at the economic data.” Colby Smith

Will copper break out of its coronavirus-induced slump?

The outbreak of coronavirus brought copper’s rally to an end. After rising at the end of last year on anticipation of a preliminary trade deal between the US and China, the metal — often viewed as a bellwether for the global economy because of its wide range of uses — has fallen sharply on fears of the demand hit from the deadly virus.

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The metal, used in everything from household wiring to electricity transmission cables, hit $6,300 a tonne in mid-January before dropping to a near three-year low of $5,528 a couple of weeks later as the scale of the health crisis started to become clear. It is now trading at more than $5,700 a tonne.

Colin Hamilton, head of commodities research at BMO Capital Markets, said copper smelters had been running at close to normal levels since the outbreak because they were not easy to shut down and restart. But fabricators, which machine, cut and weld alloys to turn them into products, have been running below 50 per cent capacity, forcing the smelters to build inventories or send refined copper to warehouses, Mr Hamilton said.

As China returns to work following the lunar new year holiday, the impact of the virus on the copper market should become clearer. Big producers Antofagasta and BHP could provide some guidance when they release corporate earnings in the coming week.

“We expect to see some further strategic maintenance at Chinese copper smelters,” Mr Hamilton said, with lower prices presenting an opportunity to bring forward scheduled work.

But, as with other commodities, what is needed most to push prices substantially higher is signs of the virus coming under control. Harry Dempsey



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