More than a bear market rally?

In recent weeks, the encouraging macro data published in the Eurozone and the US have made risk assets rebound. Risk assets in the Eurozone have underperformed the US market as economic surprises have not been as strong and the bottom was hit later than in the US. The first surveys published for the month of March on both sides of the Atlantic point to a healthier second quarter after a disappointing start to the year.

In the Eurozone, the Markit PMI Flash estimates for March were released last week. In particular, the Services PMI surprised on the upside (54.0 vs. 53.3 expected and 53.0 in February), while the Manufacturing PMI rose in line with expectations (51.4 vs 51.2 in February). The Composite PMI for the region remains anchored in positive growth territory, as implied by the 50pt threshold. Importantly, the pick-up has also occurred outside Germany, in particular in France, where the composite index reached its highest level since last October.

In the US, the publication of regional manufacturing indexes points to a stronger-than-expected national ISM Manufacturing PMI for March. Last week, the Dallas, Kansas City and Richmond Fed indexes rebounded in line with the NY Empire and Philadelphia Fed indexes published earlier in the month. Given recent survey data, recession fears expressed in January and February appear to belong to the past. Conversely, the probability of a Fed hike in the summer has increased in recent weeks. An upcoming Fed rate hike could well present the next obstacle markets will have to negotiate in the coming weeks.