European bourses ease lower despite business activity booming, US data deluge coming

After hitting fresh record highs earlier in the week, European bourses are edging lower on Thursday as investors digest upbeat European PMIs and look cautiously ahead to a US data deluge.

Britain’s service sector recorded the largest jump in activity in 24 years in May as lockdown restrictions continued to ease and customer-facing parts of the economy sparked back into action. The services PMI came in at 62.9, up from 60.7 in April and ahead of the 62.0 preliminary reading. This was the highest level seen since May 1997.

The data points to the UK economy experiencing a strong surge in activity as lockdown rules eased on pent-up demand. This pace of expansion is unlikely to be sustained, but it certainly gives the economy a decent jump start.

The data comes after the OECD upwardly revised its economic forecast for UK growth to 7.3%. The UK is expected to grow faster than any major economy this year, although it contracted by almost 10% in 2020, the worst contraction amid major economies.

European PMI figures are similarly upbeat. European business activity surged in May as lockdown restrictions started to lift. Life was injected back into the economies’ dominant service sector, mirroring similarly strong data for the manufacturing sector earlier in the week. Manufacturing activity hit a record high in May.

As the vaccination programme in the region accelerated and the third wave of Covid passed, restrictions started to ease. The composite PMI, a good gauge of economic health, rose to 57.1, up from April’s 53.8.

US futures are pointing to a softer start as investors await a slew of data, which could provide further clues over the health of the US labour market and shed some light on what to expect from tomorrow’s non-farm payroll report.

FX – Dollar edges higher 

The US dollar is on the rise but remains around five-month lows, reflecting the Fed’s ultra-easy policy. However, some investors have become increasingly nervous that a strong economic rebound and rising inflation could force the Fed’s hand earlier. Yesterday the Fed’s Beige Book indicated that the pace of the US economic recovery had picked up over the past two months, fueling concerns over rising price pressures. The Fed’s Patrick Harker said the Fed should start taper talk, but a lot depends on tomorrow’s jobs data, particularly after April’s surprisingly weak report.

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