The PMI for the U.S. ISM non-manufacturing sector soared to 51.6 in April. This is a 2.8-point jump from March’s 50.8. This data beat out the consensus estimate of 50.6, which suggests that the services sector expanded modestly this month. Investors are wrestling with an unclear trade picture. As such, all major U.S. stock indices fell on that day.
This article delves into what some of these key economic indicators could mean. It further contrasts U.S. equities with European markets and previews anticipated releases from other regions, notably featuring the Euro area and Sweden.
U.S. Non-Manufacturing Sector Insights
The U.S. non-manufacturing business activity index dropped to 53.7 from 55.9. Even with this decrease, the index was still higher than the neutral 50 level, indicating that the services sector is still expanding. This rise in the composite PMI indicates that business activity is slowing, but not declining.
New orders, prices and employment metrics made significant headway into positive territory in the non-manufacturing sector. That’s a sign of strong consumer demand resilience and more growth to come, even with the economic headwinds today. Analysts are watching these trends like a hawk as they’re telling us everything we need to know about how healthy (or unhealthy) our economy is.
U.S. Equities Underperforming
Indeed, on the day after these economic indicators were released, U.S. equity markets were under significant downside pressure. The Dow Jones Industrial Average dropped 0.2%, with the S&P 500 down 0.6%. The Nasdaq fared the worst, falling by 0.7% and the small-cap Russell 2000 lost ground of 0.8%.
European equities stood in stark contrast, outperforming U.S. equities over the same period of time, as cyclical stocks like materials, industrials and financials drove the European equity rally. This divergence is a testament to the underlying change in investor sentiment. Now, investors are reading economic signals through the lens of enduring trade worries and rising inflationary pressures.
Upcoming Releases and Regional Data
Looking forward, market participants are looking forward to final PMI data for April, coming out in the EU’s economic powerhouse of the Euro area. This will give more context to the economic condition in Europe and may affect the global market sentiment.
Additionally, Sweden is set to release its services and composite PMIs for April at 8:30 CET. Analysts will be anxious to compare these numbers to those in the U.S. They are especially fascinating because global economies are so deeply intertwined.
Back to Switzerland, April’s inflation figures confirm that headline inflation stayed put at 0.0% YoY. This is a drop from last month’s 0.3% increase. Core inflation fell to 0.6% from 0.9% previously. Taken together, these figures paint a picture of cooling inflationary pressures that will likely have major implications for monetary policy in the area.