Eurozone PMI shows continued decent growth… outside of France
The desk maintains a cautious outlook on the Eurozone economy, especially in light of recent PMI data that reflects growing economic divergence, notably decreasing in France. Per the full note from ING, the composite PMI dropped slightly to 51.9, yet it remains above the 50-mark indicative of growth, showcasing resilience despite rising energy costs. However, France's PMI plummeted from 51.1 to 48.4, signaling contraction and raising concerns for the ECB's policy direction. As the October readings come into play, the desk anticipates the ECB will hold rates steady in the upcoming meeting amidst these mixed signals.
What the desk is arguing
The desk views the latest Eurozone PMI data as indicative of a complex growth landscape, with France's economic contraction contrasting with overall stability in the region. Per the full note from ING, while the composite PMI decreased to 51.9 from 53.1, reflecting a deceleration, it still suggests decent growth. The notable drop in the French PMI to 48.4 is particularly alarming and highlights underlying vulnerabilities.
Likewise, rising input costs driven by increased energy prices remain a significant concern for manufacturers across the Eurozone, potentially dampening future growth prospects. The challenge for the ECB will be to balance these inflationary pressures while considering stagnation risks in France, which could complicate their monetary policy stance if the trend continues.
Where it sits in our coverage
The consensus target for EUR/USD sits at 1.075, with a range from 1.04 to 1.12 as several institutions adjust their forecasts. Notable firm targets include: - jpmorgan: 1.10, Mar26 - bofa: 1.04, Mar26
This analysis aligns with jpmorgan’s outlook, suggesting bearish sentiment may not yet warrant aggressive selling pressure, particularly given the potential for policy discussions at the ECB on rate adjustments.
How other firms see it
Some firms, including jpmorgan and citi, are aligned with a cautious bullish stance on the Euro amid resilience in the broader Eurozone economy. In contrast, bofa holds a more pessimistic view, anticipating further declines given the bearish signals from France's economy. This divergence illustrates the differing interpretations of Eurozone economic health, especially in the context of energy costs and the potential ECB response.
One to watch is the EUR/USD pair as it closely correlates with ECB policy directions and broader economic indicators, particularly those emanating from France.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Eurozone composite PMI shows resilience, but France experiences contraction.
- 02Rising energy costs are increasing input prices across the Eurozone.
- 03The ECB is likely to maintain rates in light of mixed economic data.
- 04Market divergence exists among institutions on Eurozone growth outlook.
Market implications
Traders should monitor the EUR/USD as it may reflect shifts in ECB policy following the latest PMI print. Should the French economic downturn persist, this could weigh heavily on the overall Eurozone outlook and influence rate decisions.
Risks to this view
A significant shift could occur if upcoming economic data from France reveals more severe contraction, prompting a more aggressive ECB response. Additionally, unanticipated spikes in energy prices could further hinder economic performance across the Eurozone.
Older quick take Quick take Published 09:22 Eurozone PMI shows continued decent growth… outside of France The decrease in the composite PMI from 53.1 to 51.9 still leaves the index at a level associated with decent growth. Growth concerns seem mostly centred around France while input costs are rising across the eurozone again So far, economic growth has remained resilient in the eurozone despite the energy shock. Third quarter GDP growth was likely still decent, judging from sentiment data, although industrial output did disappoint in July.
But the start of 3Q still benefited from the temporary dip in energy prices, while concerns about France only emerged towards the end of the quarter. The October PMI shows that the economy remained resilient amid higher energy prices. France is the notable exception though, where the PMI dropped from 51.1 to 48.4, a level associated with contraction.
While the reading should not necessarily be taken at face value, the direction of travel is clearly negative for the eurozone’s second-largest economy. Input prices rose sharply again across the eurozone, which was mainly due to higher energy costs, with manufacturing particularly affected. While selling prices were more muted, according to the survey, the impact does reflect the fact that the energy shock is impacting the cost base for businesses.
With growth indicators remaining relatively resilient, some hawkish pressure on the European Central Bank is likely to remain. But the weakness in France’s PMI illustrates the conundrum facing the central bank, as we described here . For next week’s meeting, we expect rates to remain on hold.
GDP Eurozone Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Author Bert Colijn Chief Economist, Netherlands Older quick take
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