What's going on?
New survey data out on Tuesday showed that the UK, eurozone, and US economies are getting back on track in the race to overcome the damage done by coronavirus.
What does this mean?
Business buyers in each economy’s manufacturing and services industries are asked how busy they’ve been each month – and June’s surveys produced an encouraging picture of all three economies. While overall economic activity still shrank slightly, it was a big improvement on the shell shock of April’s record declines. Within the eurozone, it’s notable that Germany – the bloc’s largest economy – continued to contract this month, but France – the second-largest – actually clocked rising activity across the board, suggesting that it wasn’t as hard-hit by the pandemic (tweet this).
Why should I care?
For markets: Good news for banks.
Analysts have feverishly debated whether central banks in the UK and US will turn turtle, lowering interest rates into European-style negative territory in a bid to encourage economic activity. Given June’s surveys theoretically suggest an imminent return to economic growth, they may now be less likely to do so. That’d be good news for non-central banks in both countries: lower rates would likely mean lower profits, and US financial firms are already expected to report second-quarter earnings down 40% on this time last year.
The bigger picture: If the past has tortoise anything…
Global economic recovery is partly dependent on smooth global trade. But with tensions between the US and China momentarily resurfacing this week, investors should remember that trade wars can lead to even the best-laid economic projections going awry. As the US and Europe remain locked in dispute and the UK bids to negotiate post-Brexit trade deals, some investors are poised to retreat into their shells.