A New Chinese Miracle and too Much Optimism in Europe

Alexander Kuptsikevich

Europe did not manage to rely on this experience, which turned out to be a disaster for Italy and Spain. The inability to quickly limit the spread has resulted in far more significant losses.

The practice showed that governments have to make a quick choice: to shut down a particular city or province today under strict quarantine, or to extend it to the whole country a week later. The US was overly optimistic about quarantine measures. However, their health care system is still far from the chaos of Italy and Spain.

Today we saw a new Chinese miracle. The PMI business activity indices in March came back into growth territory. Published service and manufacturing PMIs reached 52.3 and 52.0 in March against 29.6 and 35.7 in February. These figures should be interpreted as the economy returned to growth in March, having overcome the consequences of quarantine quite fast. The quarantine blitzkrieg may now become an economic one.

Of course, this does not mean that this will be the case in Europe and the US, where a national quarantine will destroy business activity in both March and April.

Today we will see the publication of March employment figures in Germany. Later this week, the data from the United States will be published. And for now, it should be noted that the average market forecasts are seriously lagging behind the data. Initially, we saw a sharp underestimation of the depth of the downturn in China; now the same can be said about the speed of recovery in the country.

For Europe and the United States, economists so far repeat the same mistake as before with China, expecting on average an increase in the number of unemployed in Germany by 23k, and a decrease in employment by 81k the United States. These estimates may be too optimistic, which may cause severe dynamics after the publication of the data.

by Alex Kuptsikevich, the FxPro senior market analyst.

This article was originally posted on FX Empire