US futures and European markets react to PMI data and heightened geopolitical tension
|European markets and US futures are trading lower and riskier assets are out of luck today. In Europe, the optimism among investors has faded as investors digest growth forecast from the European Commission. The entity now expects the EU-wide GDP to plunge by -7.4% in 2020 against the previous +1.4% forecast. The EU countries that are reliant mostly on tourism are likely to be hit the most. Of course, this can change the game if we do have a vaccine for coronavirus. Investors are hopeful that the new EU Recovery Fund will help to boost the economic growth in the Eurozone, and countries that are under the influence of Coronavirus will get most of the aid.
The fresh euro-area PMI data has given us more color about the health of the Eurozone. This is an early indication of business activity returning to its new normal as governments within the EU scaled back from their lockdown measures. However, looking at the economic numbers, the picture is still somewhat hazy, and it is still arduous to read the full output. This is because the lockdown remained in place for some countries during the early weeks of May. But the fact that the overall output is better than the previous reading is encouraging signal for the eurozone's growth.
Plenty of Ink Spilled
Sterling is trading weak against the dollar today because the door for the negative interest rate was left ajar yesterday. The MPC policymakers assured the markets yesterday that they will not hesitate to deploy unorthodox methods to stimulate growth in the UK. The bank is set to push the limits if there is any need for it.
Plenty of ink has been spilled to asses the merits of negative rates. The latest data indicates that lower borrowing rates (when the bank cut the interest rate from 0.75% to 0.1%) have had a muted impact on the cost of new loans. The bank is likely to expand its asset purchase program in June or August until the end of November, and if the economic weakness continues to linger, the bank will deploy all necessary measures. Until that time, it is expected that most of the work needs to be done by fiscal policies.
Later today, we will also get the UK's PMI data that hit the all-time last month, and this month's reading may show that we have formed a bottom.
Deteriorating Sentiment
Investors are concerned about the deteriorating relationship between the US and China. This has made many cast doubts about the recent rally in riskier assets. President Trump upped the ante yesterday by launching a direct attack on Chinese leadership. His tweet illustrated criticism. In addition to this, the US Senate passed a bill that could stop Chinese companies from listing on American exchanges.
One Billion USD
In terms of corporate news, AstraZeneca Plc's stock is likely to face higher volatility today because it received over 1 billion in US funding yesterday to develop a COVID-19 vaccine. A vaccine is seen as a way forward to get global economic growth back on track after a lockdown-induced slump.
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