Weak PMIs pressure EUR & ECB


The Euro remains under pressure following the PMI data dump. Earlier the key economies of France and Germany posted weaker than expected composite numbers with the stand out number being the continuing deterioration in German manufacturing. At 43.1 the index is at a seven-year low and the contraction accelerates as the global trade slow down bites. The country, whose export sector performance was admired a couple of years ago, appears to have been one of the largest victims of the ongoing trade tensions, with the automobile sector being one of the worst hit. German and French PMIs highlight weakness in manufacturing. The French manufacturing PMI fell back to 50.0 in the preliminary July reading from 51.9 in June.

Together with rising risks of a no-deal Brexit scenario the data is adding to pressure on Draghi to ease policy again and is fuelling speculation of an early 10 bp rate cut tomorrow. The German 10-year yield is marking new record lows and has fallen back to -0.3856% on the data.

Germany Manufacturing PMI

source: tradingeconomics.com

Earlier today Daimler reported a 1.56 billion Euros loss before interest and taxes in the second quarter. The German company said 4.2 billion Euros in one-off expenses contributed to the operating loss in the quarter, compared with a 2.6 billion profit in the same period last year.¹The overall Eurozone PMIs were also below expectations, no surprise given the German and French data, and July flash manufacturing PMI was 46.4 vs expectations of a no change from June at 47.7. The more significant Services PMI were in line with expectations at 53.3 but down from the June reading of 53.6.

The manufacturing PMI is at a 79-month low, the manufacturing output reading at a 75-month low and with Markit reporting that companies are scaling back hiring intentions and that inflationary pressures “became increasingly subdued”, the data will add to pressure on Draghi to act decisively and possibly cut rates as early as tomorrow.

EURUSD fell below S1 at 1.1126, EURJPY to 120.20 from 120.56 and EURGBP dropped to 0.8937 from 0.8962.

¹ https://uk.reuters.com/article/uk-daimler-results/daimler-second-quarter-hammered-by-one-off-diesel-charges-idUKKCN1UJ0FS

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Stuart Cowell

Head Market Analyst

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