Markets seem to be regaining a bit of confidence after last week saw several reports showing signs of softening on the trade war front. However, concerns about the effects of tariffs driving the markets have been mostly that: Concerns. It takes time for the effect of tariffs to be seen in the data. The initial tariffs applied in February and March didn’t appear to shake up the data all that much.
However, the tariffs being applied starting on April 2 were a significant increase. It’s hard to think they won’t have an impact on the economic data. The first insight that we have covering that period comes from PMI surveys conducted in April, which will be coming out over the course of the next couple of days. This will provide some clear insight into how businesses are reacting to the tariffs, and what differences are seen between the more affected countries and those that are negotiating.
The Tone Could be Set By China
China is the first to report, and as the target of the largest tariffs, will get the most attention. First is the official NBS reading, which covers the bigger, state-owned companies that are more domestically facing. They would presumably be less affected by the tariffs, at least initially. The Caixin measure, which comes out just a few minutes later, includes a wider range of smaller companies which are more export-oriented. The contrast between these figures could also be significant as far as how the market reacts as well.
China NBS manufacturing PMI is expected to take a step back, but still stay in expansion by the bare minimum at 50.0 compared to 50.5 a month ago. The private Caixin manufacturing PMI figure is expected to dip very slightly into contraction at 49.8, but down substantially from 51.2 prior. But we do need to keep in mind that the market might see bad news from China as an indication that the central government might put more stimulus into the economy.
Europe Still Holding the Line
The market reaction for Europe might be a little more muted, as we already have preliminary readings that came out last week. The expectation is that the final numbers won’t have a significant deviation, and if that’s the case, the market will likely not react. But, a significant revision would be a surprise to the market, and could cause a reaction.
German manufacturing PMI is expected to confirm another month of contraction at 48.0, slightly down from 48.3 prior. Euro Area manufacturing PMI is expected to confirm that its inline with the prior month at 48.7 compared to 48.6 in March. A sudden downturn could be attributed to the initial impacts of tariffs.
The Unexpected American Resilience
The flash reading for the US S&P Global manufacturing PMI caught the markets by surprise when it actually advanced into expansion to 50.7 from 50.2 prior. That figure is expected to be confirmed on Thursday, a potential sign that businesses are finding ways to avoid the worst of the tariff effects.
But, the more closely followed US ISM Manufacturing PMI comes out a little later, and there the situation is expected to not be so rosy. The forecast is for a drop further into contraction ato 47.2 from 49.0 prior. But, the S&P figure could indicate that there might be a surprise lurking here, as well.
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