Europe points to weaker start ahead of slew of data

After a strong session on Tuesday which saw the FTSE close 1.6% higher and the Dax gain over 2.5%, European stocks are pointing to a mildly lower start on Wednesday, amid growing fears of the damage that the coronavirus crisis is inflicting on economies.

Rocky road to recovery

Currently the markets have been pricing in the expectation that economies will be able to pick up reasonably well from where they left off pre-coronavirus crisis, once the lock down is eased. However, with growing job losses and a change in dynamic in certain industries, such as aviation, and potentially many other sectors such as retail, restaurants, gyms and bars, it’s becoming increasingly clear that this will be a rocky road to recovery. Market moves higher are lacking follow through and therefore conviction.

Whilst the aviation sector is slashing jobs as it burns through cash as entire fleets remain grounded, there could be more optimism surrounding other sectors, but that depends largely on how the reopening goes. Investors will be watching very closely as parts of Europe and America start easing restrictions allowing, shops, malls, restaurants and bars to reopen.

Treasury’s conundrum

In the UK, the Treasury’s conundrum of how to phase out the furlough scheme without triggering mass redundancies will be key to how the UK comes out of the coronavirus crisis. The government’s furlough scheme has been a life support machine for the UK labour market.  6.3 million furloughed people are paid 80% their wage by the government, an initiative which has been crucial in keeping smaller business afloat. Yet the speedy removal of such an initiative could result in a huge wave of redundancies. Service sector PMI data yesterday, which came in at a record low of 13.4 in April highlighted the collapse of activity in the UK’s dominant sector.

Service sector PMI, factory orders & retail sales

Data from Europe will be under the spotlight today with service sector pmi’s due to be released for the Eurozone.

Spain and Italy, which rely heavily on tourism are expected to see service sector activity collapse as lock down measures keep tourists away. Spain’s service sector PMI is expected to slump to 10 in April, down from 23. Italy is expected to record just 9 on the index, a number so low it is almost unbelievable.

Adding to the disastrous data, factory orders in Germany are due to have declined -10% month on month in March and Eurozone retail sales are due to drop -8% mom in the same month, down from a 0.9% increase in February.

Traders will need to stomach a barrage of weak data across today’s session.

Dax Chart