Markets rebound on mixed Chinese data

A rise in Chinese industrial production has helped sentiment to some extent, with markets rallying from critical support levels. Meanwhile, dour European growth data could be just the beginning given the expectation of a huge slump in Q2.   

• Markets rally after week of losses.

• Chinese industrial production provides boost.

• European growth slumps in Q1, with Q2 set to be worse.

European indices are on the rise this morning, with markets finally finding a bid after a period of steep losses. With critical support levels coming into play over the course of the week, the lack of a wider bearish breakdown highlights the fact that we still remain devoid of a strong enough driver of market sentiment to spark the next big break. Fears over the potential health implications of an easing of lockdown restrictions are based on a small number of cases, and thus it could take a widespread surge in COVID-19 cases to highlight the long-term economic implications of this crisis. 

Overnight data from China highlights the potential pathway for European nations, with the Asian powerhouse continuing to see dour data despite the headway made against the virus. Unfortunately, the ability to bring down Covid-19 deaths does not necessarily bring a sharp economic bounceback. One area of optimism came from the Chinese industrial production figure, which rose back into positive territory to signal a potential pick-up in business activity. However, with global demand on the wane, there will continue to be questions over Chinese growth as a result of the worldwide lockdown. 

European growth figures continue to provide a picture of economic collapse, with both German (-2.2%) and eurozone (-3.8%) GDP contracting sharply. However, much like the UK we need to treat these figures with a pinch of salt given the knowledge that the economic impact will only truly show up in the Q2 figures. The greater decline in the wider eurozone growth figures highlight the deeper decline for harder hit countries such as Italy and Spain. For Germany, the economic impact may have been less harsh, yet the prospect of a second wave could soon see another tightening in economic activity that is reflected in Q2 data. 

Ahead of the open we expect the Dow Jones to open 94 points higher, at 23,719.