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Surprisingly positive business activity shows hope for Europe

Some key Purchasing Managers’ Indices (PMIs) out of Europe beat market expectations on Thursday despite most remaining in contractionary territory. The positive surprise in European macroeconomic data helped European stocks to close higher on Thursday while Asian stocks were mixed at the end of the week. US equity markets were closed for the Thanksgiving holiday on Thursday and have a shortened session on "Black Friday". Yields on US Treasuries rose across the curve.

Shane Strowmatt, LGT
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5 minutes
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Several key PMIs out of Europe surprised to the upside on Thursday, a welcome sign for Europe’s economies that have struggled to produce significant growth this year. Euro area Composite PMI increased to 47.1 in November from 46.5 last month. Both Manufacturing PMI (43.8) and Services PMI (48.2) came in above consensus. The bloc’s largest economy, Germany, also surprised, with Composite PMI at 47.1 points, up from 45.9 in October. UK Composite PMI also improved to 50.1 in November, up from 48.7 last month and breaking above the 50-mark, which signals growth, for the first time since July.

The mood on European equity markets was lifted by the improving PMI data on Thursday. The Euro Stoxx 50, France’s CAC 40, Germany’s DAX, and Switzerland’s SMI were each up 0.2%.

In the Asia-Pacific region a slew of macroeconomic data out of Japan was in focus at the end of the week. Factory activity in Japan contracted for the sixth month in a row with Manufacturing PMI coming in at 48.1, slightly better than market expectations. That positive surprise was offset by inflation in the world’s third-largest economy, which accelerated to 3.3% in October, up from 3% the previous month. Core inflation, which strips out volatile food and energy prices, was also hotter than the previous month at 2.9%. The Nikkei 225 finished Friday’s session 0.5% higher after Japan’s markets were reopened following a holiday.

Looking beyond Japanese equity markets in the region, things were less rosy. South Korea’s Kospi finished the session down 0.7%. Hong Kong's Hang Seng Index slipped 1.8%. Shares of real estate developers fell about 2% following strong gains the day before when the government announced further measures to support struggling sector. The Shanghai Composite fell 0.6%. In Australia, the S&P/ASX 200 managed to squeeze out a small gain of 0.2%.

In geopolitics, the ceasefire in the Israeli-Hamas conflict began on Friday morning. A hostage exchange is due later in the day under a deal between Hamas and the Israeli government. The hostage exchange will take place in multiple phases over several days.

In the world of monetary policy, most major central banks seem to be following the Federal Reserve (Fed) playbook, keeping rates steady while repeating the rhetoric that rates could be increased if inflation should flair up again. That’s the approach Sweden’s Riksbank took on Thursday as well when it left its policy rate unchanged at 4%. In Turkey, however, the central bank surprised markets with a 500-basis-point hike to 40% on Thursday. The rate increase was twice as much as the 250-basis-point move that economists had anticipated.

Corporate news in focus: Allianz Investor Day.

Economic data in focus: German GDP (08:00 CET), Swiss employment barometer (08:30), European Central Bank President Christine Lagarde takes part in a Deutsche Bank event in Frankfurt (11:00), Germany’s ifo Business Climate Index (10:00), US Composite PMI (15:45).


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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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