As the Markit Manufacturing PMIs for February were recently published, I'd like to give a short update on these economic indicators for Europe. I follow these indicators to get a sense for the direction of the economy (see the chart below for the correlation between the PMI and the stock market).
The last time the European PMI was close to the neutral 50.0 mark was in late 2014. Amongst a declining Euro and the beginning of ECB's QE, business conditions improved in the months following. The question remains whether this time business conditions will improve again and prevent the manufacturing industry from falling into contractionary territory - as it happened in 2011 and 2012. As Chris Williamson (Chief Economist at Markit) said, the ECB has to take action on its meeting next week: "With all indicators - from output and demand to employment and prices - turning down, the survey will add pressure on the ECB to act quickly and aggressively to avert another economic downturn."
Additional or more than expected stimulus from the ECB will have its positive impact on the stock market. But I do not expect it to last long, because of the weak economic picture for the months ahead.
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