Markets buoyed by slim manufacturing improvement

Early suggestions that European manufacturing activity may have suffered its worst with its April collapse and could be recovering buoyed stock markets, along with fears of escalating tensions between the US and China not materialising as yet.
Markets buoyed by slim manufacturing improvement
May showed the Irish manufacturing sector as being in a situation of slower deterioration rather than recovery. Photo: iStock

Early suggestions that European manufacturing activity may have suffered its worst with its April collapse and could be recovering buoyed stock markets, along with fears of escalating tensions between the US and China not materialising as yet.

The pan-European Stoxx-600 index finished up 1.1%, holding at its highest level since March 9 even as trading activity was dulled by market holidays for Germany, Switzerland, Denmark and Norway.

Growth-sensitive sectors beaten up by the coronavirus crisis led the gains, with travel and leisure stocks jumping 3%, while banks, miners, and oil and gas companies rose between 2% and 2.6%.

While factory activity still contracted sharply across Europe in May, purchasing managers said April lows had passed as governments began to ease the tough coronavirus-led lockdown measures.

After crashing to its lowest reading in the survey’s nearly 22-year history in April, IHS Markit’s manufacturing Purchasing Managers’ Index - or PMI - for the eurozone rose to 39.4 from 33.4.

New Irish figures show manufacturing output and business conditions, here, remained extremely weak in May.

The latest monthly manufacturing PMI, from AIB, shows continued rapid falls in most areas, albeit with a recovery from April’s meltdown.

The Irish survey measured 39.2 for May, up from 36 in April but still well below the neutral 50-point mark which separates a sector in decline from one in growth.

In essence, May showed the Irish manufacturing sector as being in a situation of slower deterioration rather than recovery.

Staff hiring was up from April, but May still ranked as the second-fastest month for job culling in nearly 11 years. New orders rose very marginally, but remained extremely weak as lockdown measures remained.

“The data for May paint a downbeat picture of the sector for the third month in a row as the lockdowns associated with the coronavirus pandemic continue to depress activity,” said AIB chief economist Oliver Mangan.

"The Irish data are in line with global trends. The flash readings for the eurozone, UK and US manufacturing PMIs also saw modest rises [in May]…The indices should continue to move higher as lockdown restrictions are eased and economic activity picks up again," he said.

UK manufacturers have called on that country’s government for “radical” help to survive the crisis, while US numbers pushed off an 11-year low.

Investors also took relief as US President Donald Trump left the phase-one trade deal with China intact even as he began the process of ending special treatment for Hong Kong in response to China’s plans to impose new security legislation in the territory.

Global markets kicked off June on a positive note, with the Stoxx-600 recovering nearly 32% since March lows as hopes of a Covid-19 vaccine, easing lockdowns and expectations of more stimulus from the ECB, which is set to meet on Thursday, helped improve risk appetite.

- additional reporting Reuters

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