Eurozone sentiment ticks up in May, remains downbeat overall on Middle East war
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4 itemsMiddle East conflict weighs more heavily on eurozone PMI in May
Eurozone PMI data for May disappointed, with ING attributing the miss to heightened Middle East conflict disrupting supply chains and dampening demand. The HCOB eurozone manufacturing PMI fell to 47.4 from 47.8, below consensus expectations of 48.0, while services PMI slipped to 53.0 from 53.5. This underscores downside risks to EUR/USD, which our aggregate consensus targets at 1.075 by year-end, with a range of 1.04-1.12. The next key catalyst is the ECB meeting on June 6, where a rate cut is priced but forward guidance will be crucial for the euro.
Middle East conflict weighs more heavily on eurozone PMI in May
Lead — The ongoing Middle East conflict is increasingly impacting the eurozone's economic outlook, particularly evident in the PMI data for May, which reflects a dip in sentiment. Per the full note from ING Economics, the conflict has exacerbated existing economic vulnerabilities, creating downward pressure on the eurozone's industrial output and consumer confidence. Recent PMI results show a decline compared to past months, indicating that geopolitical tensions are weighing heavily on economic activity in the region.
Middle East conflict weighs more heavily on eurozone PMI in May
The desk evaluates the implications of the May PMI reading for the eurozone, positing that the ongoing Middle East conflict heightens recession risks in the region. Per the full note from ING, the PMI data indicates deteriorating economic conditions, which could be exacerbated by prolonged geopolitical tensions. As uncertainties grow, the potential impacts on monetary policy and fiscal stability come into sharper focus, especially given the European Central Bank's (ECB) recent stances on interest rates amidst inflation concerns. This context underscores the importance of monitoring economic indicators as traders navigate this tumultuous landscape.
Christine Lagarde, Luis de Guindos: Monetary policy statement (with Q&A)
The ECB's recent monetary policy statement highlights a cautious stance amidst rising inflation and geopolitical tensions. Per the full note [source], President Lagarde emphasized the need for a data-driven approach as inflation surged to 3.0% in April, driven primarily by energy prices linked to the ongoing conflict in the Middle East. The desk interprets this as a signal for potential volatility in the eurozone, particularly as the ECB remains non-committal on future rate paths. With the upcoming CPI and inflation rate data on June 2, traders should prepare for possible market reactions based on these indicators.
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