Market Overview

In the course of a turbulent week, European stocks opened higher and balanced well during the morning and at least in the first half of Wednesday's trading session, probably thanks to the release of IHS Markit's set of purchasing managers' indexes (PMI). The manufacturing component was propelled into the highest position since September 2018 with a reading of 53.7 points in September after 51.7 points for August, vs a median expert polls forecast of 51.9 only. 

Any figure above 50.0 level indicates expansion in the sector indicating a high pace of an industrial recovery. Perhaps, this happens because the volume of industrial products are less dependent on domestic consumption by EU citizens themselves than a service sector performance. But, on average, European residents are much more cautious both in their attitude to their family budgets and still in terms of social distancing behaviour in shopping centres, restaurants and other public places. This critically affected the Services PMI component, which has now dropped down to 47.6 points after 50.5 points in the beginning of the month and after 54.7 points indication in August. 

A level below the breakeven mark of 50.0 means a clear contraction of the sector, and therefore the composite PMI index for the Eurozone economics was down to 50.1 in September from August's 51.9 level since the share of the service sector exceeds 70% of the entire European economy. A slowdown of the service part of the economy in combination with an acceleration in manufacturing output creates a rather unordinary picture but it could become a routine for the current strange corona-poisoned time. 

Reuters cited Chris Williamson, chief business economist at IHS Markit, who commented after the data release by saying: "A two-speed economy is evident, with factories reporting that production growth was buoyed by rising demand, notably from export markets and the reopening of retail in many countries, but the larger service sector has sunk back into decline". And he added that "encouragement comes from a further improvement in companies' expectations for the year ahead, but this optimism often rests on infection rates falling, which remains far from guaranteed for the coming months". 

Meanwhile, the number of daily-detected cases in France approached 13,500 over the weekend and also exceeded 10,000 yesterday, which is a higher figure than the national 7,379 peak of August and the 7,578 peak in March. In Spain, the number of newly detected cases has almost reached its spring levels. In Germany and Italy, the situation is much better, and the number of cases in these two countries does not indicate any new spikes. However, the services PMI index in Germany is at 49.1 points, which is also below the 50.0 mark, while the German manufacturing PMI is at the "mountain summit" of 56.6 points. However, the authorities in the European continent say they are doing much more tests, most cases are asymptomatic, and the absolute fatality numbers are not critically rising. So, the EU country leaders repeated not once nor twice, that they are not ready to make an appeal to any strict national lockdowns, as they are waiting for the vaccines and relying on the socially responsible behaviour of the people. 

In the UK, where the daily spike yesterday almost reached 5,000 cases - which roughly touches the spring figures - Prime Minister Boris Johnson made a statement in the House of Commons on Tuesday saying that “at every stage in this pandemic we have struck a delicate balance between saving lives by protecting our national health system and minimising the wider impact of our restrictions... but we always knew that while we might have driven the virus into retreat, the prospect of a second wave was real... and I am sorry to say that – as in Spain and France and many other countries – we have reached a perilous turning point". He added, the chief medical officer and chief scientific adviser warned that the doubling rate for new cases could be between seven and twenty days with the possibility of tens of thousands of new infections next month. So, he asked all office workers who can work from home to do so. In key public services, and in all professions where homeworking is not possible, such as construction or retail, people may continue to attend their workplaces. All pubs, bars and restaurants now operate at table-service only, except for takeaways, and together with all hospitality venues must close before 10 p.m. 

More than that, his government extended the requirements to wear masks to include staff in retail, all users of taxis and private hire vehicles, and staff and customers in indoor hospitality, except when seated at a table to eat or drink. In retail, leisure, tourism sectors, the viral-secure guidelines are becoming legal obligations, so some businesses could be fined or even closed if they breach the rules. Rules for wedding ceremonies became more lenient. Weddings can be attended by a maximum of 15 people, while up to 30 people may still attend a funeral. The penalty for failing to wear a mask or breaking the "rule of six", which refers to the gathering of a large group of people  in public places, will double to £200 for a first offence. Business conferences, exhibitions and large sporting events will not be legal in the U.K. from October 1. 

Boris Johnson especially emphasised that: " We will not listen to those who say, let the virus rip; nor to those who urge a permanent lockdown; we are taking decisive and appropriate steps to balance saving lives with protecting jobs and livelihoods." So, the British government was not talking about a national lockdown or other options for a hard closure of economic activity. However, the announcement of these new measures was enough for the British Pound to continue moving down from the 1.2825-1.2855 resistance area from Tuesday to reach the crawl space under the 1.27 level on Wednesday morning. This downward tendency is highly likely to continue until the end of the week given the difficulties in the Brexit negotiation process, and the safe-haven buying of U.S. Dollar nominated Treasury's bonds during the lasting technical correction of global stocks, which has picked up steam since Monday. 

The situation  with a media investigation leak concerning some big European banks added some fuel to the market correction flame, so EUR/USD also dropped below the 1.17 main technical support which is now testing the lows of August. A similar picture may be observed in AUD/USD and NZD/USD, due to the profit-taking wave after the four months of U.S. Dollar weakening and on some moderate safe-haven buying of the U.S. Treasury's bonds. The rest of the week may show how stable or strong the current tendencies are vs the currency basket.

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Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.