Both the European stock indices and the European currency are falling on Friday after the publication of PMI reports. It is the PMI reports that are often treated by investors as the fastest ones, ahead of data on sales, production, GDP etc. This time PMI has been disappointing, spoiling the mood in the markets.
Published data indicate that the economic recovery in Europe fell sharply in August. The service sector in the eurozone wiped out the recession on a monthly basis, while the industrial sector in France contracted in relation to the previous month. The increased wave of COVID-19 left its mark as companies cut back on employment and new firms were set up at a slower pace. France recorded nearly 5,000 new coronavirus infections on Thursday. This is a new record since the lifting of the restrictions in May.
For the markets now, as next week, the trade and political conflict between the US and China may be important. This week, Donald Trump's administration has not confirmed the reports of the Chinese trade ministry that talks on the first phase of the trade agreement will resume in the coming days.
In the US, the emergence of the next wave of COVID-19 has forced some states to change their previous strategy to open up the economy. Partial restrictions have thus returned, which may affect the publication of US data, including the Consumer Confidence Index, US income and expenditure, and orders for durable goods. For this reason, employment growth is weakening, as further data on unemployment benefits show. Americans also no longer receive a 600 USD benefit, but only 400 USD. A new relief plan is still being discussed and was supposed to appear a few weeks ago.
Interesting data on Canadian GDP will also be published on Friday 28 August. Canada is likely to record a record fall in GDP by about 40% in annual terms for the second quarter. Together with the data from the first quarter, we will see a total decline for the first half of the year at around 14%, more than in the US but less than in the UK or Spain. Therefore, the data may be important for the Canadian dollar, which also seems to depend on the situation on the commodities market, including oil.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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