Eurozone PMIs and UK GDP headline busy morning

Good morning,

• FOMC discusses exit strategy but warns rate hike not in the pipeline;

• Chinese manufacturing PMI improves but remains below 50;

• Eurozone PMIs and UK GDP headline busy morning;

• Plenty of US data to follow this afternoon.

A surprise improvement in the Chinese manufacturing data and last night’s dovish FOMC minutes are both supporting the rally in European futures this morning, with the FTSE up 19 points ahead of the open, the CAC up 15 points and the DAX up 41 points.

We’ve also seen strong gains in both the US and Asia over night, with traders initially responding positively to the FOMC minutes which were released on Wednesday evening. The minutes showed the Fed discussing its exit strategy from the ultra loose monetary policy that has been employed for so many years.

This could well have been viewed as a sign that the FOMC is considering hiking rates sooner than is currently priced in. However, the absence of even a rough date in the minutes, along with the statement that the discussion shouldn’t suggest that any rate action is in the pipeline was not only enough to ease any concerns, it gave investors confidence that a rate hike is still a long way off.

Traders were given a further boost overnight by the preliminary release of the Chinese HSBC manufacturing PMI, which rose unexpectedly to 49.7. The optimist in me looks at this figure as a sign that we could be seeing a turnaround in the sector and that the mini stimulus programs are working, following a difficult start to the year.

The pessimist on the other hand sees a fifth contraction figure on the bounce and wonders how the country can possibly hit its 7.5% growth target when such a key sector has been contracting all year. The government and central bank appear very reluctant to intervene on a large scale again, which is understandable, but that doesn’t bode well for the country’s chances of reaching the kind of growth levels it has become accustomed to.

Today is looking quite busy, which isn’t that difficult when compared to the week we’ve seen so far. There’s an abundance of important economic releases which means we could see some quite volatile markets throughout the day. The first of these come from eurozone, where we’ll get preliminary reading of the manufacturing and services PMIs for Germany, France and the eurozone. Most of these are expected to pull back very slightly from April, but remain comfortably in growth territory, which is the most important thing.

Following this is the second estimate of UK GDP for the first quarter. This is expected to remain unchanged at 0.8%, further confirming the UK recovery as being both strong and sustainable. While it would be good to see the economy going from strength to strength, in today’s economic environment, it’s probably more of a blessing to see good steady growth than large fluctuations.

Moving into the US session there’s plenty more data being released, including weekly jobless claims, the CB leading indicator, the manufacturing PMI, existing home sales and the Kansas Fed manufacturing index. Needless to say, it’s going to be quite a busy day, which as mentioned earlier is a blessing given the slow start to the week that we’ve had.