Of course, any head of a European equities department sitting at their City desk Friday would say something to the effect of pointing investors towards the recently hopeful figures that came this week from the euro area.
Like Jeffrey Taylor of Invesco Perpetual, who noted today that “Markit’s July PMI data from France and Germany surprised positively both with regard to the manufacturing and the service sector surveys. Data for the Eurozone as a whole is similarly good.”
Or Charles Stanley Direct’s head of investment research Ben Yearsley, whose comments didn’t avoid the seemingly institutionalised political maze behind the bright numbers. “Greece, Portugal, Spain and maybe even France all have the potential to upset markets,” Yearsley explained, “[because] the root cause of all last year’s problems, indebtedness, has not gone away; I think we can expect continuing political tension.” But he added: “Will it be a surprise if there are more problems in Europe? No, but I’m not sure there will be problems.”
The data they all were referring feels hot, indeed, amid the usually depressing news the Eurozone has accustomed us to expect from it.
In France, the manufacturing purchasing managers’ index (PMI) was at a 17-month high, even if still barely missing the 50 level indicating expansion. Manufacturing output spiked from 47.9 in June to a 25-month high of 51.3 this month and analysts at Markit highlighted France’s better trends in new business, employment, backlogs of work and a more positive outlook for future activity in the service sector, “all of which would be supportive of a return to growth in H2.”
In Germany, there were increases in both the manufacturing and service registers. The manufacturing PMI is now back in expansion territory at 50.3 thanks to what Invesco described as the “sharpest increase in manufacturing output since early 2012.” The German services PMI rose from 50.4 to 52.5, helped by a pick-up in future business confidence.
At investment house Schroders, Europe economist Azad Zangana talked Thursday of the risk of a two-speed European economic scenario. “Stronger growth in aggregate will help support the union, which continues to battle high and rising unemployment, and dangerously low inflation… The improvement in the PMIs suggest the Eurozone economy should exit recession in the third quarter of this year. The recovery is likely to remain uneven, with most of the growth being generated in core Europe, while peripheral Europe languishes with austerity.”
Yet, that’s not entirely right. Banco Santander researchers told investors today that the Spanish premium risk–the cost of 10-year credit for the Spanish government–kept falling after the publication of the latest unemployment data. The jobless rate dropped to 26.3% with 149,000 new jobs and 225,000 less unemployed Spaniards, the first quarterly reduction since 2010.
And Greece reached a parliamentary accord over fiscal policy and public payroll that will grant the country a €5.8-billion rescue package. The cost of its debt eased at least 3 basis points, too.
This is surely the sort of contagion markets have been waiting now for too long. Progress sounds still wobbly, but optimistically wobbly, at last.