European markets are selling off heavily this morning, with the FTSE in particular giving back some of those substantial gains seen from Friday’s Bank of Japan fuelled rally. The question on everyone’s mind this week is whether the gains seen over the past two weeks are the start of a wider recovery, or simply a precursor to another leg lower in global markets. Today marks the beginning of a week with huge significance in terms of economic releases. It seems likely the market direction for the rest of the month will be hugely influenced by the market reaction to a handful of key data points.
Today looks set to be dominated by the release of manufacturing PMI readings from a whole host of prominent economies. The release of yet another disappointing Chinese manufacturing PMI reading should have come as no surprise to many, with five of the last six sub-50 readings (denoting contraction) coming below market estimates. From an industrial perspective, there are precious few indicators that point to a recovery within China and this continues to spell bad news for the global economy which has been hugely reliant upon Chinese demand to help compensate for weak western demand post-2007.
UK manufacturing started off 2016 on the right foot, with today’s PMI reading pointing to an acceleration in the speed of expansion in the sector. Domestic demand remains the mainstay of UK manufacturing, as highlighted today, which saw export orders flounder in the face of an overall industry in ascent. The strength of sterling relative to the euro remains a big issue and with expectations of further action at the European Central Bank in March, this theme is only likely to intensify.
Ahead of the open, we expect the Dow Jones to start 85 points lower, at 16,381.