- Markit’s preliminary PMIs for November are expected to show declines across all parameters.
- Previous beats, vaccination prospects, and mild lockdowns give way to upside surprise.
- EUR / USD may rise in response to the data.
Winter has arrived and with it an upsurge in virus cases and an economic recession – this is the main reason the business climate is expected to decline. However, the optimistic mood may have gone too far.
The economic calendar shows significant declines in all preliminary indices from Markit’s purchasing managers in November, based on lockdowns in Germany, France and most countries in the currency bloc.
The euro zone’s overall composite PMI is expected to drop from 50 – the level between expansion and contraction – to 46.1 points. Is this the case?
Three reasons to expect surprises on the rise
1) The cavalry arrives
Pfizer and BioNTech announced their COVID-19 candidate was 90% effective on November 9, in time to be taken into account by the Markit surveyors. The initial success had the most significant impact on financial markets and also opened the door for others using mRNA technology. Moderna came a week later with her encouraging results.
While any immunization program has production, storage and distribution barriers, having that “light at the end of the tunnel” is a huge morale boost that could lead to a better PMI.
2) The locks are a bit lighter
Unlike the panicking of the economies in the spring, the public, medical staff and governments are much better prepared for the winter wave. Schools remain open almost everywhere and office workers do their jobs from home.
Additionally, the lockdown on Germany has been described by officials as “light.” France has suffered stricter measures, but these are bearing fruit, potentially also fueling business confidence.
3) economists were too pessimistic
Review of the euro area composite PMI, the the consensus of economists’ estimates was too pessimistic in the last seven publications. Although they predict the general direction of travel over the past three months – to the decline – the result has beaten estimates.
Will recent history repeat itself for the eighth consecutive time? A sharp drop of nearly four points seems inconsistent with recent declines, leaving room for upside surprise.
EUR / USD reaction
the tug of war between vaccines and virus development remains to the left, to the right and to the center of the markets. Still, as the dust settles on vaccine news and ahead of the U.S. election, economic data may come to the fore. EUR / USD hesitated after swinging higher in response to vaccination news.
Optimistic PMIs, especially those of German manufacturing and the composite reading, could push the common currency up.
Markit’s preliminary eurozone PMIs provide a glimpse of how the old continent is dealing with the second wave of lockdowns. Expectations can be too high.
No more weekly EUR / USD forecast: bulls remain in control after virus-vaccine fight