Weaker PMI data prompts investors to reassess current values

Thursday, May 21, 2015

European equity indices experienced a rather subdued trading session today, following on from a mixed Asian session as investors continued to mull over yesterday’s FOMC meeting minutes. The general consensus seems to be that the fed funds rate will remain close to zero for the remainder of the year as recent economic data releases has failed to instil enough confidence in the US economy. Equity benchmarks across Europe spent the majority of the session in negative territory despite better than expected PMI data. The flash manufacturing PMI reading for the eurozone saw a modest uptick from the previous month to 52.3 in May, exceeding the median estimate of 51.8 according to a Bloomberg poll while the flash services PMI reading faltered slightly, dropping from 54.1 last month to 53.3 in May.

With a growing number of market participants worried that US equity markets are now overvalued after the S&P hit a new record intraday high yesterday having gained 14% over the past twelve months, we could see some modest profit taking in the coming sessions if data continues to disappoint, potentially gathering pace over the medium term. Today’s US macro data releases have so far been relatively disappointing with the Chicago Fed national activity index coming in at -0.15 in April against expectations of a slight improvement from March’s -0.36 reading to 0.00. Initial weekly jobless claims piled on additional downward pressure on risk assets, rising 10K w/w to 274K. The Markit manufacturing PMI further disappointed investors with the preliminary reading coming in at 53.8 in May against expectations of 54.5 and with equity indices lacking the necessary impetus to push higher both the S&P 500 and DJIA were trading tentatively around the open.

Eurozone PMI shows signs of steady improvement

MPMIEZMA Index Markit Eurozone 2015 05 21 13 11 29

US initial weekly jobless claims head higher

INJCJC Index US Initial Jobless 2015 05 21 15 35 56

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