US PMI surveys and Fed minutes in focus after EU PMIs

The European stock market hovered near three-month highs on Wednesday, as rallying commodity stocks offset weakness in Credit Suisse, following the company's profit warning. After gloomy PMIs from the EU, investors are now watching business activity and jobless claims in the US to get a better picture of how the broader economy is faring. Wednesday morning, the US dollar weakened slightly in early European trade, as it retreated ahead of the release of the minutes from the latest meeting of the Federal Reserve, which is likely to provide some clue as to the magnitude of any future rate hikes.

There is a strong probability of EUR/USD staying in positive territory above 1.0300 after data from Germany, which was released earlier in the session, showed that private sector activity contracted at a slower pace than expected in November. Investors await US PMI surveys and home sales figures along with weekly jobless claims.

S&P Global's manufacturing purchasing managers index increased from 45.1 in October to 46.7 in November, defying expectations that it would decrease further, even though it is still clearly below the 50 level that differentiates growth from contraction in the manufacturing sector.

Moreover, the comparative PMI for the services sector also improved remarkably, contributing to a rebound of 46.4 from 45.1 in the composite PMI. Despite the fact that this flash PMI survey does not change the narrative about Germany heading for a recession in the near future, some hope does remain that the recession will be less severe than initially believed.

It is therefore likely that the market will remain focused on the minutes of the November FOMC meeting, which will be released later during the US session. A further increase in interest rates is expected by the market. However, Fed officials are attempting to impress on the market that the battle against inflation is still ongoing, but they have also indicated they may be leaning toward a smaller rate increase than the 75 basis points the US central bank has hiked over the past four meetings. A softening of economic data coming out of the United States could lead to expectations of a smaller rate increase in the months to come. The United States Durable Goods Orders for October are foreseen at 0.4% while the S&P Global Preliminary Manufacturing and Services PMIs are seen heading into contraction for November. The markets are now pricing in about 75% odds of a rate hike of 50 basis points (bps) in December. In addition to the dovish pivot enthusiasm, Fedspeak has added a layer of caution to it, which may lead investors to be more cautious about overinterpreting dovish signals from the minutes of the meeting than would be ideal.