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Global Flash PMIs: A Return to Optimism?

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Recently, natural gas trading in The Netherlands fell to the lowest price in a year. That’s still above the average, since natural gas prices had been rising as tensions between Russia and Ukraine were brewing before the start of the war. But, it’s a substantial drop from the highs seen during the summer, which had given rise to fears that there would be an energy crisis in Europe.

With almost a month of mild weather, it appears that Europe is at least positioned to avoid slipping into a recession. ECB’s head, Lagarde, had presented that opinion previously. With stronger growth in Europe, but inflation still extraordinarily high, it would presumably give more room for the ECB to keep hiking.

Good news is bad news

The ECB is already talking about at least 50bps hike at the next meeting, followed by initiating QT in March. Despite this, the EURUSD has come down over the last few weeks, mostly due to dollar strength in the wake of stellar jobs numbers from January. With the economy in the US seen giving the Fed more room to hike as well, the pair is back to being buffered by economic projections – but, in reverse.

The better the economy, the more tightening, which could bring down stock markets. But, on the other hand, it could support the respective currencies. The UK managed to escape falling into a recession by the absolute minimum, so signs of optimism in the economy could also raise expectations that the BOE could turn more hawkish as well.

The consensus has been that most economies would slip into a recession this year, forcing central banks to turn around and lower rates. The more signs of that not happening, the more currencies could strengthen. Tomorrow’s Flash PMIs could rearrange market expectations for the rest of the week.

What to look out for

French manufacturing PMI had already returned to expansion last month, and the expectation is for it to move solidly higher to 51.2 from 50.5. Services PMI is now also expected to breach the 50 threshold and turn expansionary at 50.2, up from 49.4 previously. Reminder that as the first large country to report from the EuroZone, France could set the tone for the Euro for the rest of the day

German manufacturing PMI is forecast to improve to 48.2 from 47.3 prior, though stay in contraction. On the other hand, it would be the fourth consecutive expansion, and return to levels last seen in August. German Services PMI is expected to advance further into expansion at 51.5 compared to 50.7 prior

UK manufacturing PMI is expected to also expand, but remain below its continental peers at 47.5 compared to 47.0 prior. Services PMI is also expected to remain in contraction at 49.3 compared to 48.7 prior.

US manufacturing PMI is expected to remain in contraction, but jump to 49.0 from 46.9 prior, as the narrative of an impending recession faces better than expected data. Services PMI is expected to improve by the sam amount to 48.9 from 46.8 prior.

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