Chinese economic data has set the tone for the equity markets and it is a positive one. The question is if the strong performance of the equity markets in Q1 can last.
Turkish Lira may recover after election results but Pound is still in misery
There is a lot of optimism and joy among investors today, thanks to the Chinese economic data that painted a very optimistic picture. The Chinese factory PMI number moved back in the expansion territory with a higher reading of 50.5 compared to the previous number of 49.2. This was the largest gain since 2012. Perhaps, the trade war pessimism has finally started to fade away.
This wasn’t the only good news out of China pushing the markets higher in Europe today. The Caixin manufacturing index also posted a strong reading of 50.8, well ahead of the forecast, marking the strongest reading since July last year. It is this optimism that initiated a strong start for the equity markets today, on the heels of strong Q1 performance. To put things in perspective, the S&P500 index experienced its best quarter since 2009, up over a whopping 13 percent.
Year-to-date, the S&P 500 index is up 13.07%, the Nasdaq 16.49% and the Dow Jones has gained 11.51%. In Europe, the Stoxx600 index has climbed 12.27%, the Dax 9.16% and the CAC40 index is leading the gains, up nearly 13.10%. The strength of the risk off sentiment can be witnessed by looking at the performance of the VIX index, that is down -46%, and the VSTOXX index, that lost nearly -35%.
In terms of currencies, it is all about two currencies today: the Turkish Lira and the British pound. Over in the UK, Theresa May's plan was shot down last week. However, the prime minister is still aiming to bring the vote back in the parliament for the fourth time after three consecutive humiliating losses. The disarray in her own party over her choice of the Brexit deal is still substantial and the reality is that she is willing to risk everything, including the future of the UK, to get her version of Brexit deal approved. Less than two weeks are remaining before the UK crashes out of the EU without a deal, but it seems like politics in the UK is worse than those in third world countries.
As for the Turkish Lira, Tayyip Erdogan has secured another important victory in the local elections but his control over two major cities, Istanbul and Ankara, has somewhat weakened. This drove the Turkish Lira lower against the basket of G10 currencies. At the time of writing, the Turkish/Dollar pair was trading at 5.62. Nonetheless, we are well below the yearly high of 7 Liras per Dollar. Erdogan's victory represents more stability for the currency. Moving forward, his biggest challenges will be to drive growth in the country and navigate the economic ship away from the shores of economic recession.
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