Recovery from the bottom? Sustainability?

PMI data from Europe points to a more positive outlook than expected, and the first effects that came with economic openings showed that recovery is continuing. (Tera Yatırım)

PMI data from Europe points to a more positive outlook than expected, and the first effects that came with economic openings showed that recovery is continuing. In France, manufacturing PMI rises from 40.6 to 52.1, while service PMI rises from 31.1 to 50.3, indicating a growth position. In Germany, manufacturing increased from 36.6 to 44.6, and service from 32.6 to 45.1, and even though the contraction continues, the momentum of this contraction has decreased considerably in June. In the general data of the Euro Area, manufacturing seems to have recovered from 39.4 to 46.9 and service from 30.5 to 47.3.


In the UK, while the manufacturing sector PMI indicator came from 40.7 to 50.1, it moved to a growth position; On the other hand, the service recovered significantly from 29 to 47.


With the acceleration of the opening of economies and the normalization effect with June, the sectors that became operational appear to be reflected. However, there are still vulnerability factors in terms of production, demand and employment components. The collapse effect observed in April became more stable in May and more positive in June. On the other hand, it would be a very optimistic expectation that the tendencies of companies such as production, export and employment to reach the levels before pandemic in a very short time. During this period, firms had to continue financing their debts, while losing their revenues to a great extent. In the current environment, it is important to both cut interest rates and make bond purchases in a way that facilitates corporate finance. At the same time, financial incentives and direct financial aids are also important… Firms need to ease their financial burdens during the pandemic period and remain operational. New investments may remain fragile, perhaps due to financial conditions, but at least with no firm closings, the labor market does not suffer an additional weakening.


If we look at what the central banks and governments do in this regard;


·         The Fed announced that it will start buying corporate bonds. That is very important for companies terms of funding sources.

·         The European Central Bank added 600 billion EUR to the PEPP program.

·         The Bank of England increased its asset purchases by 100 billion GBP to 745 billion GBP.

·         The Banks Main Street Credit Program announced by the Fed 1.5 months ago is being implemented by banks.

·         European leaders are trying to agree on a 750 billion EUR coronavirus rescue package. The issue causing the dispute is how much of the package include grant and loans. The non-problematic Northern European countries are absolutely against the grant model and want the package to be credit-weighted.

·         In the USA, either the infrastructure-based traditional expenditure package of Trump or more innovation and technology weighted package of Pelosi will pass.

·         Britain was also dealing with uncertainty over the Brexit model during this period, and they lost considerable time in the pandemic negotiations, along with disagreement.


We expect economies not to be closed as much as possible, even if the virus reaches to wave 2 situation (currently seen wave 1 extension). Developed countries are normalizing because of not the elimination the outbreak, but to ease the financial burden. Existing recovery scenarios (V or U-shaped, I still think that V-shaped recovery is too optimistic scenario) have been created according to the current conditions and if there is a wave that will cause closure in the next 1-2 months (maybe after September), new bottoms will be mentioned in terms of economies. So all calculations have to be made cautiously. The continuity of improvement will depend entirely on success in managing the virus outbreak and manageability of the process.

Source: Tera Menkul
Hibya News Agency