The forecast here that the global economy will retain momentum through mid-year is supported by yesterday’s US Philadelphia Fed manufacturing survey for April and today’s German Ifo poll. The expected new orders balance in the Philadelphia survey – which often leads the national ISM orders reading – remains above average.
German manufacturing expectations, meanwhile, continued to recover in April, reaching a nine-month high. The historical correlation with the Eurozone purchasing managers’ new orders index suggests that the “flash” April PMI survey released on Monday will surprise positively.
The consensus view is that the German pick-up is not representative of the wider Eurozone and will reverse as peripheral recessions deepen. Other indicators, however, are also hinting at an improvement in the Eurozone PMI survey, including equity analysts’ earnings revisions and a leading indicator derived from OECD data.
Renewed weakness in peripheral sovereign bond markets has encouraged claims that the ECB’s interest rate cuts and liquidity injections have been ineffective. The view here is that such a judgement is premature: monetary policy acts with a lag and the latest money supply statistics – for February – do not incorporate even the initial impact of the second, larger three-year LTRO. Eurozone-wide M1 recovered modestly in the latest three months.