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Trading with caution, all eyes on PMI and data

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By Naeem Aslam  

US and European futures are trading mostly higher on Wednesday, while most of the US and European stock indices remain in negative territory.

Investors are largely confused: is the current weakness in the market just a correction or is the stock market rally that we experienced so far this year over due to concerns over Chinese economic growth?

There is no doubt that at the beginning of this year, there was a lot of hope among traders and investors that when the Chinese economy returned to post-COVID normality, we would see strong demand.

However, economic activity has been weak, and China has stopped reporting some important economic figures, which is going to make investors a lot more sceptical about everything. Having said this, one consistent message that we continue to hear from Beijing is that regulators and policymakers continue to support economic growth with more favourable policies.

The other particular worry for traders and investors is whether the fear of inflation is over.

So far, investors have seen a strong downward trend in the inflation numbers, which has caused the Federal Reserve to take the foot off the gas pedal when it comes to the interest rate hike cycle. Many traders believe the Fed will not raise rates any further as inflation seems to be under control, although it is still running much above the Fed target.

Eyes on U.S. economic data

One thing that investors do pay close attention to is economic data, as the Fed and other central banks’ policies continue to remain highly dependent on the economic data, and it is the data that will determine and explain if the US economy is heading for a soft landing, which is the wider base case, or if markets are going to go somewhere else.

Wednesday is mainly going to be about flash PMI numbers in Europe, the UK, and the US.

Last month we saw weakness in the German manufacturing PMI numbers, and Germany is the most important economy and the economic drive of the Eurozone.

Expectations are for the German manufacturing number to show a slight improvement with a reading of 38.9 against the previous 38.8. The forecasts for the Eurozone Flash Manufacturing and Services PMI are 45.1 and 50.9, respectively.

Later in the day, we will also get the same data set for the US, and the forecast for the flash manufacturing PMI is 48.9 and for the services PMI is 52.1.

 

Naeem Aslam is Chief Investment Officer at Zaye Capital Markets.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Zaye Capital Markets.