. Focus EZ PMI data, EU Summit and market sentiment
http://ntvforex.com/news/?id=9aeea1. . 7 17 2020 12 16 59 PM . . . EZ recovery will lose momentum after strong increase . From May onwards, the Eurozone economy was able to recover more quickly than expected in some areas, thus confirming the surprisingly positive development of many leading indicators . Looking ahead to next week, a first flash estimate of the Eurozone PMI for the manufacturing and service sectors in June will be released. The service providers sentiment already returned in June almost to pre crisis levels. In comparison, the recovery in the manufacturing sector is developing at a slower pace. Manufacturing is negatively affected by the fact that the pandemic is not under control globally. . Now that the incidence of infections within the EU is under control, we expect a further improvement in the business climate in July. However, we expect the recovery of industry to be modest in view of the rising number of infections on the global level. In general, we expect the momentum of the recovery in the Eurozone to slow steadily in the coming months. The crisis related negative turnaround on the labor market will have a dampening effect on the propensity to consume in the medium term and thus also have a negative impact on the economic momentum of the Eurozone. The adjustment of the economic structure to the post Corona world will take some time. A large number of jobs will probably be lost for good. An active labor market policy will therefore play a key role in the coming years in order to support the existing potential workforce in its reorientation towards a digital working world. Against this background, the targeted use of public funds is essential to minimize the long term economic damage of the crisis. . . Hope dies last . In recent days, sentiment has changed almost daily between risk on and risk off and the Samp P 500 has alternately closed one day in positive territory and the other day in negative territory. Those investments considered safe, such as gold or the Swiss franc, weakened slightly, and stock indices that are more representative of the old cyclical industry e.g. the Dow Jones rose. This could be an indication of growing hope with regard to the 2021 outlook . . The reporting season for 2Q is in full swing and has so far brought no negative surprises also with regard to the outlook. The rising number of new COVID 19 infections in some countries is not currently being viewed with great concern by the financial markets. Successful reports on the testing of vaccines are stabilizing market sentiment. In all its scenarios for further economic development according to the minutes of the meeting of June 4 , the ECB has also assumed that effective medical treatment will be available by June 2021 at the latest. However, positive effects from the EU Recovery Fund are not included in the ECB s staff projections. At yesterday s press conference, ECB President Lagarde expressed her hope for the rapid and full implementation of the EU reconstruction fund. Well designed structural policy measures would be important to revive economies that have been hit. Investments in environmental and digital change should be pursued as a priority. The structural collapse of the euro area economy is dampening inflation expectations. A survey of professional forecasters shows that long term around 3 5 years inflation expectations for the Eurozone are now at 1.6% previously 1.7% , with a simultaneous downward revision of the forecast for core inflation to 1.5% from 1.6% . The ECB plans to fully utilize the currently agreed level of PEPP #EUR 1.35tn , unless there are positive surprises to bring inflation back to its pre crisis path in the medium term. . A special physical European Council meeting will be held this weekend to discuss the reconstruction plan to cope with the COVID 19 crisis and the long term EU budget. The Reconstruction Fund will comprise #EUR 750bn loans, grants and will be allocated to those countries and sectors most affected by the crisis. Criticism has been voiced by the four net contributors Netherlands, Denmark, Sweden, Austria which are, in return, together with Germany, to be granted flat rate rebates. The criticism concerns above all the conditionality for the use of the funds. About 30% of the money is to be used for climate related projects. Italy and Spain are calling for a quick conclusion of the negotiations, and Germany and France also hope that agreement on the package will be reached in July. Depending on the outcome of the talks, volatility in the markets will remain high next week and we expect the sideways trend to continue in the coming days. . . Download The Full Week ahead