Markit expert Chris Williamson comments on eurozone PMI and investor sentiment
“Investor sentiment toward the eurozone has surged so far this year, and looks set to continue to build after the region’s economic recovery gained further momentum in March. The Markit PMI™ hit its highest level for almost four years, rising from 53.3 in February to 54.1, according to the flash reading. The March reading was higher than all economists polled by Reuters had been expecting, with a consensus prediction of just 53.6.
“The data suggest that eurozone GDP looks to have expanded by 0.3% in the first quarter, buoyed by a 0.4% expansion in Germany and signs of a long-awaited recovery in France. Although the surveys are signalling a mere 0.2% expansion of the French economy in the first quarter, the euro area’s second-largest economy is seeing its best performance since 2011.
Investors flock to gain eurozone exposure
“The improvement in the PMI provides welcome news to a region awaiting signs that the ECB’s quantitative easing is stimulating the real economy. Investors have flocked to gain exposure to eurozone assets since the central bank announced its stimulus plans.
“Investor sentiment towards the region has shown no signs of abating in March, according to Markit’s exchange traded fund data. ETFs exposed to the eurozone enjoyed record inflows so far in the first quarter. A net $31bn extra invested so far this year, including an $11bn net inflow in March, has outstripped the prior quarterly record almost three-fold. Investors have ploughed money into both equity and fixed income ETFs to extents not previously recorded, though the former has vastly outstripped the latter. So far this year, equity funds exposed to the euro area have seen some $24bn net inflows while fixed income fund inflows have reached almost $7bn.
“However, if the economic data continue to surprise on the upside it is perhaps only a matter of time before there’s a market pull-back, not least because investors will start to perceive an end to the ECB’s ‘open-ended’ QE programme.”
