PMI improvements justify hopes for global recovery

06-01-2009 11:11

During last night’s trading the Euro reached a 1.4246 level due to the eurozone manufacturing PMI climbing, while bullish sentiment increased on the back of rising stock markets and commodity prices. The manufacturing PMI climbed from 36.8 in April to 40.7; the largest increase since 1997. The combined reading reached a seven-month high, caused by the increases in France, Italy and in Germany.

President Trichet: €60 billion in covered bonds

The ECB is expected to leave the benchmark rate unchanged at 1.00%, stimulated by the increased manufacturing PMI. The central bank is expected to clarify their quantitative easing measures. According to Jean-Claude Trichet, president of the European Central Bank, their target is to obtain an amount of €60 billion in covered bonds, in order to supply liquidity to countries such as Spain, France and Germany. However, the committee could decide on additionally measures which could cause the Euro to trade heavy because there remain downside risks to growth.

UK fundamentals reinforce bullish sentiment

The Pound Sterling climbed 200 pips reaching a 1.6433 level, as a result of progressing UK fundamentals which continue to boost bullish sentiment. For the first time within a year prices were stable in May and did not decrease, according to the Hometrack housing study. The quantitative easing measures by the Bank of England defrosted credit markets. There are no reasons for the central bank to initiate additional measures after the statement of last month that they would increase their bond purchase program by £50 billion. The UK manufacturing PMI increasing from 43.1 to 45.4 is another proof that the economy is recovering. The next months could result in growth for the entire sector if new orders grow from 46.4 to 48.9.

Gloomy prospects for US Dollar

During last night’s trading the Dollar traded heavy, due to increasing commodity prices and improving Chinese PMI which stimulated risk appetite. The Greenback will continue its weakness if the ISM manufacturing increases from 40.1 to 42.3, which will prove that the worldwide recession weakens. Nevertheless, the expected 0.2% decreases in spending and personal income will weaken hopes for internal growth. Confidence is growing and stimulates prospects for consumer demand to reinforce. However, the forecasted half million job losses in May will dim the improved outlook. Optimism could decrease due to the labor report expectations of next Friday. Nevertheless, the Greenback could continue its weakness if signs indicate that the global economy is stabilizing.