How will stock markets respond to Friday's PMI data?

March PMI data are due this week and the markets will keep a close watch on them to help them make the right investment decisions for their portfolios.

How will stock markets respond to Friday's PMI data?

Friday sees the publication of an array of service sector purchasing managers indexes for the month of March, and its data that investors will be keen to analyse.

For the UK it’s the first time we’ll the UK’s services purchasing managers index (PMI) for March and an early assessment of how the UK’s economy likely performed in the first quarter of 2018.

IHS Markit – who calculates and produces the key reports – will also publish the final, more complete European services PMIs.

What the markets look for

Markit’s monthly PMIs measure the health of each participating country’s private sector, by surveying purchasing managers across the manufacturing, construction and services sectors.

While the surveys don’t include data on the public sector – only the Government holds that information – the information IHS Markit does gather, indicates how much consumers are spending, how much businesses are buying and decisions they’re making regarding their employment levels.

This early gauge of activity across the private sector can help investors make a decision on which industry, currency or country to invest in – and which to avoid.

Among the more important reasons why traders monitor the PMI indexes closely, is because they are among the earliest indications of real activity. They don’t just assess sentiment, they are based on actual sales, purchases and employment changes.

PMI survey recap

The February UK services PMI survey showed a strong increase in growth with the index rising to 54.5 from 53.0 in January. New business activity among service providers was a key driver of this gain, with positive business-to-business transactions.

The heavy snow during March, however, is likely to weigh on the index – how much will be seen Thursday. In addition, how much that likely weather-related slowdown could affect the UK’s Q1 GDP prospects.

For the Euro-Zone, Friday’s publication is the second time we get to see how the area performed during March, and it’s a more complete picture as the indexes are based on all responses, rather than the smaller number of responses from the preliminary survey results.

Fortunately, the markets are prepared for confirmation of a slowdown after the preliminary euro zone composite PMI slid to a 14-month low of 55.3 from February’s 57.1.

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