Tomorrow’s release of Flash PMI figures from select major economies around the world could be the last major economic release that could shift market sentiment this year. Particularly in light of the latest round of central bank meetings, with markets taking on the impression that the tide is turning towards easing.

After a year of predicting an imminent recession, it seems markets have become convinced that a hard landing has been avoided. But that could lead to a more complicated situation, with high inflation and low growth for the coming months. While some countries manage to avoid the dreaded stagflation process, they could see their currencies benefit. Other economies that have failed to gain momentum could see their currencies decline. Which those are could be foreshadowed with the release of PMI figures.

A Special Spotlight on Europe

The US’ blow-out Q3 GDP figures have reassured investors in the American economy, so there are fewer worries about its PMIs. Japan has also managed to eke out notable growth this year, but the latest trends might be leading to rising worries. The other major economy that is balancing between growth and slowing down is China, but we don’t get preliminary figures for their PMIs.

Europe’s economy has been battered by high costs from the fallout from the war in Ukraine, with higher interest rates difficulting a rebound. At first it seemed like Germany was the most affected, and the rest of the countries might be able to limp along until some kind of recovery. But the latest indicators from France suggest the economic malaise far from resolving might be spreading. The ECB might have welcomed the surprise drop in inflation, but it seems to be a product of a stagnating if not outright declining economy. Investors might be very keen to keep a focus on European PMIs for any signs the situation could be worsening. That could cause the ECB to hasten rate cuts next year, and bring the Euro back to parity with the dollar.

What the Key Data Might Show

Australian December Flash PMI is expected to improve to 48.5 from 47.7. Still in contraction, but seeing some of the benefits of an improving situation in China that sees continuing demand for iron ore. But the RBA having to keep rates high to tamp down inflation might help keep the Aussie stronger even if the economy doesn’t show a clear return to expansion.

After its surprise drop in November, French PMIs will be in focus to see if there is a rebound. Manufacturing PMI in France is expected to see a modest improvement to 43.6 from 42.9 prior. But that is still very much in contraction territory and in line with Germany, which is already in a recession, technically.

Germany is up next, with the manufacturing PMI expected to stage a strong rebound to 44.1 from 42.6 prior, as investors hope the largest economy in Europe sees improvements. The lack of worries over energy supply this winter is seen supporting the German economy. But the large improvement expected leaves more room for a potential disappointment.

The UK is expected to see its manufacturing PMI inch closer to expansion, rising to 48.0 compared to 47.2 prior. That might be a bit of a relief after manufacturing production in October was unexpectedly negative. But a disappointment could affirm a narrative that the UK’s advantage over the rest of Europe is fading, and weaken the pound.

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