Eurzozone Factory Activity Rebounding

On the back of the heavy downtrend in data seen over the last two months, there are finally some positive signs emerging in the Eurozone. The flash manufacturing PMI for May rose to 39.5 from the prior month’s record low of 33. The reading, which was also higher than the 38 print the market was looking for, reflects the pickup in activity as lock-down measures begin to ease.

With parts of the Eurozone economy beginning to re-open, workers have been returning to factories and shops; a trend which will hopefully continue now as the recovery strengthens. In Germany, the manufacturing PMI rose to 36.8 from the prior month’s record low of 34.5. However, this was a little less than the 39.8 reading expected. Germany has struggled somewhat with its first attempts at reopening as parts of the country have seen renewed increases in viral infections, leading to lock-down measures being re-introduced.

UK Manufacturing PMI Beats Expectations

In the UK, the factory sector has also marked a pickup in activity with the flash manufacturing PMI for May rising to 40.6 from the prior month’s 32.6 record low. This reading, which was well above the expected 35.1 level marks a near ten point rise in the index, fuelling hopes of a return to expansionary territory over the next month or two.

The flash services PMI was also better this month, rising to 27.8 from the prior month’s 13.4 level and above the expected 24.1 level. The services sector has been the worst hit in the UK and is still only around half way back to the neutral level on the index.

Risks Remain

The improvement in May readings is helping lift risk sentiment this week as investors begin to see some light at the end of the tunnel. However, there are plenty of risks ahead and both the BOE and the ECB, as with all central banks, have noted considerable uncertainty in the outlook. The easing of lock-down measure is being carefully watched and the risk of a second spike in infections is high. In such circumstances, full lock-down measures would need to be re-introduced which would be catastrophic for the global economy.

Traders are now waiting on the US manufacturing PMI reading due later today. The index is forecast to rise to 39.3 from the prior month’s 36.1 and should help further boost risk sentiment across the end of the week.

Technical Views

EURGBP (Bullish above .8861)

From a technical viewpoint. The rally in EURGBP has stalled just ahead of the monthly R1 at .9021. With VWAP positive now, while prices remains above the .8861 level, the near-term bias remains bullish and an eventual test of the .9097 structural resistance and yearly R1 is the main objective for bulls.

Manufacturing PMIs Recovering in May

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