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European Manufacturing PMIs Expected to Show Less Optimism

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Tomorrow is the first of the month and the day arrives with a treasure trove of data from Europe.

Given the importance of the figures’ release, we can expect some extra volatility in the pound and euro pairs. Lately, both currencies have been relatively stronger in comparison to the softer dollar. We might get some data though that could change that situation.

One of the most important figures come from the Purchasing Managers Index surveys. Businesses manage their inventories with a few months of anticipation, so the data would represent how major firms see the economic situation evolve in a few months.

This is particularly relevant now in the context of covid. In the next two or three months is when we may see another surge of covid cases due to environmental factors and potentially a new vaccine alluding to the delta variant.

So, it’s important to know whether businesses are expecting another round of lockdowns or other forms of economic restrictions.

Understanding the underlying issues

Purchasing managers are the most sensitive to price changes.

Although Europe is not facing the same inflation problems as other countries at the moment, it doesn’t mean that the euro is immune from any impact. If prices increase among the eurozone’s main trade partners, but the euro does not adjust to reflect it, then inflation could pass on to the shared economy.

Most recently, the ECB has insisted they have more room to keep economic support going for longer than other central banks. If businesses are holding back purchasing due to a fear of a deteriorating economy, then the central bank might be on an easing track for longer.

However, if businesses are front-loading purchases concerned about inflation trends, then regulators might reassess their policy outlook. Particularly after both German and French CPI have come in above expectations in the latest releases.

What to look out for

The first data that could move the market is the German Retail Sales. Economists expect them to drop to -0.9% compared to +4.2% in the prior month. That implies an annual change of 3.7% compared to 6.2% a month earlier.

Next up is the release of Swiss Manufacturing PMI, which could drop to 67.3 from 71.1 prior. That’s still a relatively optimistic number, but the concern for the markets might be the trend to the downside in the middle of the summer.

Fifteen minutes later we get the Italian Manufacturing PMI. Analysts anticipate the data will remain relatively flat. Should expectations not be met, it could raise concerns about the resilience of the recovery in the periphery. It’s possible to come in at 60.1 compared to 60.3 at the end of July.

Economists project French Manufacturing PMI to decline moderately to 57.3 from 58.0 prior. This places the data among the least optimistic of the major economies in the eurozone.

Additionally, they predict German Manufacturing PMI to decline the most of the major economies to 62.7 from 65.9 in the prior reading.

Overall, we can anticipate the whole eurozone Manufacturing PMI to stay optimistic but resume the trend downwards. Specifically, it’s possible to come in at 61.5 compared to 62.8 in the prior reading.

Finally, the UK could report a Manufacturing PMI of 60.1 compared to 60.4. This is technically lower, but for practical purposes, it’s broadly flat.

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