Thursday is Markit day

Thursday was Markit day as the research firm announced the results of China’s and the euro zone’s Purchasing Managers surveys, suggesting a decent start to the third quarter for both regions. The monthly reports are studied closely as a figure above 50 indicates an expending economy, a figure below 50 a contracting economy. China’s efforts to dispel concerns of a hard landing appear to be working as the manufacturing index came in at 52, ahead of the 51 that economists expected. 

The eurozone showed signs of improvement as the composite index rose to a three month high. Markit’s chief economist brought a little reality to the report, stating that the modest growth implied in these latest figures would not make “a dint” in the jobless rate. Underlying that point Spain announced their second quarter unemployment rate at 24.47%. The report also continued to highlight the ongoing differences between the strength of the German and French economies. The composite index for France came in at 49.4; in contrast the German index came in at 55.9. One can imagine that the continued disparity in the performance within the euro zone of these two “northern economies” will underpin the tension between the monetary wishes of the two countries. 

After yesterday’s MPC minutes implying the bank are in no hurry to raise rates, the FT reported on a speech by Mark Carney suggesting that he believed the economy was normalizing and therefore interest rates will need to rise at some point. Despite these comments the pound lost ground again to the US dollar, as the dollar continues to climb higher against its basket of currencies. So far the move has been marginal but for the past month the USD has crept higher most days, from a low of 79.7 to close on Thursday night at 81.  

The US stock markets have been benefiting from the weakness of the dollar, particularly against the euro and the pound, leading to significant outperformance. Should investors see a continued recovery in the USD, for whatever reason, that performance gap may start to close. On Thursday, despite a batch of mixed economic data, US ten-year treasury yields climbed back over 2.5%. Perhaps US investors are starting to think about the possibility, that if rates in the US do rise early in 2015, that’s only 6 months away. 

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Posted on July 25, 2014 .