Middle 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.
What the desk is arguing
Per the full note from ING Economics, the eurozone PMI data for May showed a sharper-than-expected slowdown, with manufacturing dropping to 47.4 and services to 53.0. The desk frames this as evidence that geopolitical tensions—specifically the Middle East conflict—are weighing more heavily on business activity than previously assumed, disrupting supply chains and reducing export demand.
The supporting evidence includes the composite PMI slipping to 51.7 from 51.9, missing the consensus estimate of 52.0. ING's economists highlight that the decline was broad-based across Germany and France, with new orders contracting for the first time in three months. The alternative read—that domestic demand remains resilient—is implicitly rejected, as services new business also softened.
How firms align with this view
Key takeaways
- 01Eurozone PMIs missed expectations in May, with manufacturing at 47.4 and services at 53.0.
- 02ING attributes the weakness to Middle East conflict disrupting supply chains and dampening demand.
- 03The data reinforces downside risks to EUR/USD, with consensus targeting 1.075 by year-end.
- 04ECB meeting on June 6 is the next key event; a rate cut is likely but guidance will be key.
Market implications
Watch EUR/USD for a break below 1.0700, which would target the 1.0550 region. The ECB's June 6 meeting will be critical; a dovish cut could push the euro lower, while hawkish guidance might provide a temporary floor.
Risks to this view
The bearish call is invalidated if upcoming eurozone data (e.g., German Ifo, industrial production) show resilience, suggesting the PMI miss was noise. Additionally, de-escalation in the Middle East could lift risk sentiment and support the euro.
Sources & References
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