The DAX is now up by 1.7%
European stocks are pushing higher after the headline beats on the two reports earlier, which even saw French economic activity seemingly returning back to 'expansion' territory for the month of June. US futures are also keeping higher by around 0.6% to 0.7% now.
The reaction in the currencies space mirrors that of a risk move with the dollar and yen weakening, as EUR/USD climbs back above 1.1300 and AUD/USD up to 0.6930.
So, what exactly does the PMI data from France and Germany earlier tell us?
In essence, it reaffirms that that we have moved past the trough in terms of the drop in economic activity as things are slowly but surely stabilising in the euro area.
However, the V-shaped recovery in the headline readings should not be confused with a V-shaped recovery in the economy or in terms of economic conditions whatsoever.
The services reading is a prime example of that, as this is how the reading is derived:
The Services Business Activity Index is the direct equivalent of the Manufacturing Output Index, based on the survey question "Is the level of business activity at your company higher, the same or lower than one month ago?"
So, what this tells us is that business conditions in June trumps that in May, which trumps that in April. But what does that tell us about what the overall situation in June?
The devil lies in the details and in that sense, here are some highlights:
France
- Manufacturing, services sector both recorded output growth
- But demand conditions remain subdued, new orders continuing to decline
- New export business falling further into the end of Q2
- Private sector firms continue to cut back on staff numbers
- Outstanding business fell for a fourth month in a row
- Input prices rose for the first time in four months, but only marginal
Germany
- Business activity edging closer to stabilisation
- Sector level results show identical declines in services activity, manufacturing output
- New orders still showed decline, but shallowest in the past four months
- New export business declined further, but less sharp
- Payroll numbers were reduced for a fourth month in a row
- Business expectations turned positive, reflecting some optimism
While overall conditions are still far away from returning to pre-virus levels, there are some improvements and that appears to be enough to keep the market happy.
As mentioned going into the releases, it doesn't take much to get this market to look at things with the 'glass being half-full' and that is certainly the reaction so far.
However, for those banking on a V-shaped recovery, that isn't likely to come and it could temper with the exuberance in the market, but not for now at least.
