The downturn of manufacturing activities (HCOB Manufacturing PMI) in Europe worsened to the lowest figure in 3 months last July, but it is expected that the industry has done slightly better in August from 42.7 to 42.8 points, but still below 50, indicating a contraction in the overall economic performance. The Eurozone’s GDP growth rate slightly recovered, growing at 0.3% QoQ during Q2 after remaining stagnant during the previous quarter.
If the reading is higher than expected, it is seen as bullish for the EUR, according to analysts. However, if the reading is lower than expected, it is considered a negative or bearish signal for the EUR. The PMI reading is also a leading indicator for policymakers when deciding on monetary policy. The ECB raised interest rates 9 consecutive times with a total of 425 bps since the inception of the tightening cycle which is considered the tightest in the bank’s history, as inflation is still persistently high despite the economic slowdown. The core inflation rate is expected to remain as is in August at 5.5% YoY, a level not seen in decades.
Last July, Factory Production experienced a significant decline due to a fall in demand as both consumers and manufacturers remained pressured by high levels of borrowing costs and inflation. The lower production of intermediate goods disrupted the whole supply chain. New orders fell slightly, marking the first drop since January.
As the data above indicates, the Euro area has finally taken the plane to recovery, but the plane is moving at a slow pace as energy prices are falling, easing pressures on the manufacturers. The market is still hoping for a soft landing for Europe and the rest of the globe. Therefore, all investors and traders should watch and take their decisions carefully and try to take advantage of the flight.
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