What could undermine confidence? The macro figures published in April came out better than expected. In particular, they confirm the strength of the US recovery.
The fact that the vaccination programme is progressing much more quickly than initially expected is reassuring US consumers. The outlook for the labour market has also improved significantly, which is also fuelling consumption. Continued strong inflation confirms the momentum.
At the same time, despite inflation, the Fed does not seem to be in a hurry to tighten its monetary policy. The markets are expected to prepare for tapering in the second half of this year. In April, the upward pressure on the yield on 10-year Treasury bonds disappeared. The dollar’s rise also paused, even turning into a sharp decline against the euro, for example.
Europe is preparing to emerge from its lockdowns
Europe is beginning to emerge from the torpor into which it has fallen with repeated lockdowns. It is beginning to experience that easing does not necessarily cause infections to bounce back in Covid-19. After a fall in eurozone GDP that was already 10 basis points less severe than feared (-0.6%), the second quarter should mark a return to growth. These forecasts could be revised upwards if the vaccination process progresses better than expected. This is obviously conditional to mutations in the virus not jeopardising this progress.
Several PMI indices at record levels
The purchasing managers’ indices (PMI) is also underlining the positive dynamics. The US services PMI even reached a new all-time high at 63.1 points. The manufacturing PMI is also at a level that has not been seen for a long time, at 60.6 points.
The European industry has nothing to envy to the one on the other side of the Atlantic: the corresponding index reached an absolute record for the second month in a row, at 63.3 points. Germany was the driving force. Services, on the other hand, were much more hesitant. At 50.3 points, it just passed the threshold between growth and recession for the first time since August 2020.
The fact that Germany has remained in strict lockdown for months has weighed on the score. But elsewhere in Europe, businesses are preparing for an easing in sanitary measures.
A stronger recovery obviously requires more energy. Oil still provides a large part of it. But OPEC is determined to play the game: production limits are gradually being lifted. The result? The barrel of Brent crude, for example, is levelling off without breaking the 70 dollar barrier. If oil can be an indicator for other commodities, the price increases feared by the industry in particular could remain limited.
Production capacity limited by supply
Despite this hope, supply chains are stretched to the point of limiting production capacity. This is evident even on the services side, where costs have risen at the highest rate in two years, while selling prices have remained almost flat.
The blocking of the Ever Given in the Suez Canal did not help matters. On the contrary, it is emblematic of the fragility of supply chains around the globe.
Some sectors remain particularly affected, such as the automotive industry, which is in desperate need of semi-conductors. Hopes that the shortage would ease as early as this spring have not materialized. Instead, production is likely to remain low until next year. However, the reorganisation of supply chains and the building up of larger stocks (Toyota, the pioneer of lean production that minimises the resources used, is reviewing its strategy) may stimulate growth.
