Nothing can harm eurozone growth (it seems)
At a Glance
The eurozone's resilience seems unshakeable as evidenced by the recent rise in the composite PMI, which reached 53.1 in September — its highest level in three years, up from 52.0 in August. Per the full note from ing-think, this rebound occurs in the face of rising energy prices and supply chain disruptions, particularly with a notable increase in services activity. The PMI figures suggest that, even amid geopolitical tensions and inflationary pressures, the eurozone may be poised for decent growth in the third quarter. While this data is promising, the desk remains cautious about future growth given the substantial reliance on service sector momentum, and challenges remain in manufacturing, especially in France, where the PMI is precariously close to the contraction threshold. In summary, optimism persists, but the nuances in sector performance warrant attention.
Key Takeaways
- 01The eurozone composite PMI rose to 53.1, indicating economic expansion amid external pressures.
- 02Resilience is largely driven by a rebounding services sector, particularly in Germany.
- 03The manufacturing sector is showing signs of stagnation, particularly in France.
- 04Future growth remains uncertain and hinges on sustaining momentum amidst inflationary pressures.
Full Analysis
What the desk is arguing
The eurozone's growth narrative is being reinforced by a significant increase in the composite PMI, which indicates expansion across the economic landscape. As discussed in the note from ing-think, resilience against external shocks, such as surging oil prices and supply chain crises, is somewhat unexpected but highlights the underlying strength in economic activity.
The services sector played a pivotal role in this uptick, with its PMI rising from 51.6 to 53.0, especially in Germany where it jumped from 49.7 to 52.9. However, manufacturing remains a mixed bag, and caution is warranted given its recent stagnation in several member states. The evidence suggests that the third quarter might wrap up with solid growth metrics for the eurozone, but the sustainability of this growth remains to be seen.
Where it sits in our coverage
Current consensus around EUR/USD suggests a target of 1.075, with a range between 1.04 and 1.12. The following firms have set specific targets: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This outlook aligns with a general bullish sentiment for the eurozone; however, bofa offers a more cautious perspective, lying at the lower end of the target spectrum compared to the desk's more optimistic stance.
How other firms see it
Most firms with positive views on the EUR/USD trajectory are leaning towards a stronger euro, echoing the bullish sentiment seen in the PMI reports. In contrast, bofa holds a more pessimistic view on the eurozone's resilience.
Monitoring the performance of EUR/USD will be critical as we track how effectively the ECB responds to ongoing inflationary pressures and geopolitical instability.
What the calendar says
Currently, no high-impact events are scheduled within the next 30 days, suggesting that the market may rely heavily on data-driven narratives and existing economic sentiment for direction.
Market Implications
The key level to watch for EUR/USD is 1.075, which aligns with the consensus target. Continued strength in PMI data could bolster the euro against the dollar, signaling investor confidence in the eurozone's growth narrative.
From the original
Older quick take Quick take Published 09:30 Nothing can harm eurozone growth (it seems) The composite PMI increased to its highest level in three years, coming in at 53.1 in September, up from 52.0 in August. Despite surging oil prices, low water levels and supply chain disruptio
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4 itemsEurozone PMI in line with continued steady growth despite global unrest
Lead — The Eurozone PMI data released indicates continued steady growth in the region, bolstering the case for resilience despite global uncertainties. Per the full note from ing-think, the composite PMI rose to 52.1 in August, signaling that the eurozone economy remains on a modest growth path. This outcome contrasts many market fears regarding inflation and geopolitical tensions, especially given the backdrop of rising oil prices. Therefore, traders should keep an eye on how these dynamics may influence euro volatility in the coming weeks.
Eurozone PMI: stronger data, growing doubts
The desk views the recent Eurozone PMI improvement as a double-edged sword, buoyed by stronger performance but clouded by escalating geopolitical tensions. The PMI jumped from 50.0 to 51.9, hinting at resilience in manufacturing and services as evidenced by broad-based gains in new orders and job creation. Per the full note from ING, while the data appears promising, doubts remain regarding sustainable growth due to renewed Middle Eastern conflicts, which exacerbate existing economic headwinds.