The European markets and US futures are trading higher this morning on the back of the optimism that Chinese economic growth is improving. The data released during the Asian training session showed that the Chinese HSBC manufacturing PMI for October came in at a much better level than expected and also it polished the seven month high. The final reading was 50.9 while the forecast was 50.5, which is pushing the global market higher.
Having said that, the European markets will have their challenges as the ECB is planning to undertake risk assessment on major Eurozone’s bank during the coming year. Although, these tests have been due for a long time, but the question which is imperative for us is the credibility of the ECB bank, given that the bank has already done two worthless stress test in the recent years.
Therefore, investors will be looking at the result of these stress test very carefully because, if the trouble banks do not show any major holes, then this will make this exercise once again insignificant, but on the other hand, if we do see major fleabags in their balance sheets- and given the recent rise in the stream of non-performing loans; could certainly impact the growth in the medium term for these banks.
So the anticipation would be that the recovery in the economic growth in the Eurozone would help these banks, however the confront which remain in this condition is that the results of these banks will not be due for another 12 months or so which is more likely to impact the economic recovery in the region and reduces the chances for these banks to improve their conditions as investors will not favour these stocks given the uncertainty.
The Spanish unemployment number came at a much better level with the final reading of 26% while the median estimate was 26.1%, which clearly shows that the country is on the path of economic recovery, but the devil is always in the detail which shows that the improvement in the unemployment data was down to the seasonal improvement as the tourist season was in full swing. The hopes are high that these improvements could continue during the Q4 as the country has eked out of a recession yesterday after reporting nearly 9 quarters of recession.
The French flash manufacturing reading for the month of October disappointed investors with the final reading of 49.4 while expectations were for 50.3. Similarly, the German Flash Manufacturing PMI data also disappointed traders when it came in at 52.3 which was much lower than the expectations of 53.8. This has been translated by pushing the euro lower against the dollar but has not dented the gains for the European markets so far.
Back in the US, the focus will turn towards the flash manufacturing PMI data and the new home sales reading. The expectation is for 427K for new home sales and 52.8 for flash manufacturing PMI.