A slew of Non-Manufacturing (otherwise known as services) Purchasing Manager's Indices released overnight indicated that the global economy may not be in as bad of shape as investors had feared early Monday. Global shares rallied on the services strength.
In China, the HSBC China Services PMI compiled by Markit showed that China's services sector slowed in February from January, with the PMI falling to 52.1 from 54 in January. This came on the heels of the weak official services PMI from the National Bureau of Statistics over the weekend.
However, any weakness seen in China was soon thrust aside as European figures were released. The broad Eurozone Services PMI rose to 47.9 in February from 47.3 in January on expectations of a flat reading. On a country by country basis:
- The German services PMI rose to 54.7 from 54.1 in January on expectations of a flat reading.
- The French services PMI rose to 43.7 from 42.7 in January on expectations of a flat reading.
- The Italian services PMI fell to 43.6 from 43.9 in January, in line with expectations.
- The Spanish services PMI fell to 44.7 from 47 in January on expectations of 46.
- The U.K. services PMI rose to 51.8 from 51.5 in January on expectations of a 51 reading.
The stronger than expected services PMI, especially in Germany and the U.K., ease fears of a global slowdown beginning just as the recovery recouped its leg. Investors seemed to cheer the data as risk assets gained overnight.
In Europe, shares rose following the stronger than expected data. The Euro Stoxx 50 Index rose 1.45 percent with strength in domestic German and Italian markets notable. In Asia, the Chinese Shanghai Composite Index rose 2.33 percent, leading markets despite the slowdown in the services PMI.
In China, a modest slowdown in growth, albeit still growth so long as the PMI stays above 50, could help to ease concerns of a property and real estate boom in China threatening the economy. However, a modest slowdown could prevent the PBOC from needing to ease to curb this bubble and instead just allow the rate of inflating of the bubble to naturally cool.
In Europe, particularly the U.K., the data was welcome as the U.K. looks to escape what is all but certain to be a triple-dip recession. The stronger than expected services PMI coupled with a sustained rebound in its largest trading partner, the eurozone, could allow it to escape the grasps of recession.
The euro and the pound gained on the news against the U.S. dollar as investors bid up the European currencies. The EUR/USD rose to 1.3035, a gain of 9 pips after touching as high as 1.3073 on the data release. The GBP/USD rose to 1.5156, a gain of 40 pips, after briefly touching 1.52.
Overnight, the preliminary reading of eurozone fourth quarter GDP is due out and should either confirm or reject the recovery in Europe that has been seen in PMI data over the past few months. Economists are expecting GDP to fall 0.6 percent from the previous quarter, the same as the previous reading.
BY Matthew Kanterman