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Purchasing managers' indices signal budding economic recovery in the euro area

Economic activity in the euro area grew faster than expected in April. The recovery on markets also continued, driven by good quarterly figures from some heavyweights, optimism about upcoming results from major technology stocks and the upward trend on Wall Street.

Antonia Strachwitz, LGT
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Economic activity in the euro area grew at its fastest pace in almost a year this month, fuelled by the recovery in the dominant service sector. This more than offset a deeper downturn in the manufacturing sector. The preliminary composite Purchasing Managers' Index (PMI) rose to 51.4 this month (March: 50.3), well above expectations. A value above 50 indicates growth.

The recovery continued on European markets. The Euro Stoxx 50 saw further gains over the course of the day and returned above the 5000 mark after a week. It closed 1.44% higher at 5008.17 points and broke above the 21-day line. The French CAC 40 rose by 0.81% to 8105.78 points. The DAX even gained 1.58% and made it back to 18,142.58 points after three weak weeks. However, it is still some way off its record high of 18,567 points. The quarterly figures from German software manufacturer SAP at the start of the reporting season created a positive mood. The company achieved its ambitious targets and posted total Q1 sales of more than EUR 8 billion (+9%).

In Switzerland, the SMI rose by 1.25% to 11,469.15 points. This was mainly driven by Novartis' better-than-expected Q1 2024 result. The company subsequently raised its guidance for the full year. Quarterly adjusted operating income rose 16% to USD 4.54 billion, while sales climbed 10% to USD 11.83 billion. Net sales are now expected to increase in the high single-digit to low double-digit percentage range in 2024. The good result boosted other pharmaceutical stocks such as Roche and Lonza.

The purchasing managers' indices also pointed to positive developments in other regions: In the UK, as in the eurozone, the services sector drove the PMI upwards and the manufacturing sector performed weaker. Composite PMI stood at 54.0 in April compared to the expected 52.6. Similarly, in Japan, manufacturing PMI was 49.9, the strongest reading since June 2023 and almost in growth territory. In the services sector, the PMI rose to 54.6 in April, up from 54.1 in March.

In the US, on the other hand, the PMI for April fell from 52.1 to 50.9. Business activity in the US private sector therefore lost momentum compared to March. The index for the manufacturing sector fell from 51.9 to 49.9 in the same period.

The US stock markets were dominated by technology stocks, which are also at the centre of the US reporting season this week. On Tuesday, investors were eagerly awaiting the quarterly figures from Tesla, which has been struggling recently. The company reported a net profit of USD 1.1 billion on sales of USD 21 billion, a decline of 9% compared to the previous year. However, after CEO Musk announced that new and more affordable models would be introduced in 2025, the share price soared in after-hours trading, rising 13.4%. The Nasdaq 100 Index rose by 1.51% to 17,471.47 points, the S&P 500 rose by 1.2% to 5,070.55 points and the Dow Jones Industrial gained 0.69% to 38,503.69 points.

The Asian markets largely followed the upward trend on Wall Street. Japan's Nikkei 225 rose by 1.8%, while the broad-based Topix gained 1%. The S&P/ASX 200 gave up earlier gains, but rose by 0.1%. South Korea's Kospi climbed 1.8%, driven by a 3% rise in Samsung, while the small-cap Kosdaq index was 1.4% higher. Hong Kong's Hang Seng Index rose about 1%, while China's CSI 300 opened marginally lower.

Corporate news in focus: AT&T, Boeing, Ford, IBM

Economic data in focus: CPI Australia, ifo Business Climate Index Germany, ZEW Economic Sentiment Survey Switzerland, Bundesbank President Nagel speaks 

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Lten steht Ihnen ein Berater der Bank gerne zur Verfügung.

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