Traders are likely to be looking at Friday’s Flash February PMIs with particular interest this time around. That’s because the flash PMI figures are the first major data to cover the period since Donald Trump took office and started threatening tariffs. The survey of purchasing managers is still being conducted, so the data is incomplete. But it will give valuable insight into how businesses are reacting to and being affected by the tariffs that have been put in place and could be applied in the near future.
Only a few of the major economies see partial results from the Flash February PMIs, but what the market will likely be especially interested in is what’s going on in Europe. The continent has been facing years of economic underperformance at this point, and could be in for more pain with the potential of tariffs. There has been some improvement in optimism over the potential of some kind of agreement to end the war in Ukraine, which could also be reflected in the numbers as well.
The Growing Challenges
Geopolitical focus right now is on Europe, with Ukraine and the latest round of tariffs announced by the Trump administration potentially affecting the continent in particular. Meanwhile, the market seems to be expecting the ECB to keep easing to support a souring economy. But the Euro has been generally gathering strength recently, bouncing off a bottom hit at the start of the year.
Part of that can be attributed to a growing expectations that the ECB will pause its easing cycle in the near future. ECB member Isabel Schnabel of Germany on Wednesday said that it was time to start talking about interest rates exiting restrictive territory. Which is central bank speak for interest rates have come down enough, and it’s time to pause. The view isn’t representative of a majority, it seems, but it suggests division about what to do with interest rates within the central bank.
What to Look Out For
Euro strength is reliant on an expectation that the economy improves and prices will remain elevated, broadly speaking. That could be a contradictory position, however, as high energy prices which push inflation are also one of the main drags on the economy. While some investors are more optimistic about a deal in Ukraine, it’s unlikely Europe will go back to buying Russian oil and gas. Meaning that the current economic situation may persist, except be further hurt by tariffs on key European exports to the US including pharmaceuticals and vehicles.
If tariffs or the fear of tariffs will have a major negative impact on European growth, it should show up in the PMI figures of Friday. The consensus expectation is for French manufacturing PMI to show a marginal improvement to 45.4 from 45.0 prior. But that’s still well below the 50 that separates growth from contraction.
The Big Movers
Germany is expected to be in a worse position. Flash manufacturing PMI for February is forecast at 45.1 compared to 45.0 prior. This trend is expected to be reflected for the whole of the Euro Area, with an expected February manufacturing PMI of 46.8, marginally up from 46.6 in January.
This is particularly a problem, because January’s reading was the worst in a year. That suggests that far from seeing a rebound in 2025, Europe is facing another very challenging year. What could provide an upset, though, is the weather. January saw particularly cold conditions with low winds, and a drawdown in European energy stocks. But so far February has been relatively warm, which could provide a little more optimism.
