Thursday 21 May is the date on which the relevant macroeconomic data are published which may indicate the state of the economy in the second quarter of this year. At this point in time, they indicate that rapid improvement is not to be expected, and it will probably take longer than estimated in the first quarter to return to normal. However, the markets, especially stock exchange indices, are still at relatively high levels.
According to preliminary data, the manufacturing PMI in Australia fell to 42.8 points in May 2020 from 44.1 points in April. Production has contracted for the ninth time in a row despite the easing of the restrictions associated with the epidemic. Both new orders and export sales fell at a record rate, while the pace of job losses was the fastest since PMI began.
In Japan, on the other hand, Manufacturing PMI fell to 38.4 in May 2020 from 41.9 points in April. This was the sharpest decline in the sector since March 2009. Thus, production fell the most in over 11 years and demand for Japanese goods collapsed at the fastest rate in the history of PMI. For both countries, the PMIs for the services sector was slightly better, as a result of the removal of many restrictions in May. However, the improvement does not seem to be significant.
The situation in the eurozone seems to be better. The eurozone manufacturing PMI rose to 39.5 in May from 33.4 points in April. Production contracted at a milder pace, but new orders continued to fall. Moreover, the rate of job losses slowed down slightly as companies tried to reduce their production capacity due to weaker demand. Today is not the end of the publication, as the next PMI will be published from the US at 15:45.
There are also economic worries about the increase in tension on the US-China line. On Wednesday, the U.S. Senate passed a law that may ban Chinese companies such as Alibaba from listing on the U.S. stock exchange. On Twitter, President Donald Trump also criticized China for conducting a disinformation campaign and somewhat accuses the country of a huge disaster that has affected Europe and the USA.
Nevertheless, stock exchange indices hold very high, and investors most probably count on the fact that there will be no second wave of the disease in Q3 and Q4. However, we could read about this possibility in the minutes after the last meeting of the Fed, where it was pointed out that if the second wave would happen, the recession in the USA could get worse. However, the market seems to remain optimistic.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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