Backward-facing data in Europe remain bleak, but forward-looking indicators are now turning more optimistic. The Flash Eurozone PMI Composite Output Index read 56.9 in May, a 39-month high and indicating strong expansion expectations, while the Flash Eurozone Services PMI Activity Index reached 55.1, a 35-month high and also indicating strong expansion. Eurozone business grew sharply in May as economies in the bloc eased coronavirus restrictions. The rate of new business expansion hit its highest point in three years as new order inflow surged by its highest rate of growth in fifteen years. This positive shift has started to make itself felt in corporate profits. According to Refinitiv, 272 companies in the STOXX Europe 600 Index have now reported earnings, with 72.8% beating expectations, much better than the 51% seen in the average quarter. Europe appears to be moving solidly into its economic recovery phase… better late than never.
While China’s economic recovery continues to power ahead, its public relations crisis is worsening. Sino-European relations took a hit on May 20th when the European Parliament decided to freeze the EU-China Comprehensive Agreement for Investment (CAI). MEPs were overwhelmingly in favour of the freeze. The decision was in response to Chinese sanctions imposed on EU politicians, think tanks, and diplomatic bodies following their vocal opposition to ongoing human rights abuses in Hong Kong and Xinjiang. Further, serious questions surrounding COVID-19’s origins are re-emerging, with President Biden ordering an investigation into whether the pandemic originated from a safety failure at a virology laboratory in Wuhan, China. Last week it was revealed researchers from the Wuhan Institute of Virology became critically ill and were hospitalised in November 2019 with COVID-like symptoms, two months before the virus led to the Chinese government imposing the first lockdowns of the pandemic. The veracity of the claims remains unclear, but China’s prevarication and numerous reports from Western intelligence agencies indicate there may be something to this. If true, this would have major implications for an already fraught relationship between China and the rest of the world. We will be watching the news on this issue closely.
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