Euro-Zone PMI: Activity Slows on French Vote Risk, Factory Slump

What is happening with euro dollar, It is down on the back of the data and the Eurozone data crossing right now you've got the the manufacturing number of 45.6, you've got the services number of 52.6. So that's still at least positive territory. The comp number out of Europe therefore flats at 50.8, but that's down for 52.2. The market was expecting 52.5. So we've got weakness in terms of the data that we are seeing. Let me just see if I can get you some commentary, if I can update the the website that we get this data from this morning and see if it's there's a commentary surrounding what we've seen out of the Eurozone this morning. Because what we've seen basically out of France and Germany is a pretty poor performance in terms of the story on manufacturing, a little bit better of a story when it comes to what we're seeing on the data from the services side of the economy. But nevertheless, the picture, yeah, broadly not particularly positive and not as positive as we seem to have been hoping for. The Eurozone economic recovery suffered a set back at the end of the second quarter of the year according to the provisional PMI survey data. This according to S&P Global new orders decrease for the first time in four months, feeding through to softer expansions in business activity and in employment. That is the data that you are seeing this morning out of the Eurozone. Remember, in 30 minutes, we're going to get the data out of the UK. Let's get some assessments on what is happening here. Bloomberg's chief European economist, Jamie Rush joins us now to give us his take. What do you think, Jamie? Well, it's, it's cooling off, isn't it? It's disappointing. I think the context though, more broadly, is that the eurozone economy is clearly recovering to some extent. The PM is, they're lower to this month. But relative to, say, the end of last year, we're still significantly up. So as long as this kind of momentum is sustained, I don't see a big problem here. I don't think the economy is going to suddenly contract. You know, fundamentally what's happening in the eurozone is inflation is coming down, wage growth's still pretty strong. Real incomes are growing and that's giving consumers the ability to spend. So I, I think we, we are going to see an ongoing recovery even though we've seen a bit of weakness in this, in this last month's data. Let's talk a little bit about what this means for the ECBS. Want to kind of reference as well some of the content we're getting from S&P. In terms of the inflation story, the rate of input cost inflation eased for the second month running in June and was the slowest year to date. Input prices continued though to rise sharply, however, with the latest increase still slightly stronger than the pre pandemic average. What does this data in totality do you think in tell us about how the ECB is going to be reading the Eurozone economy right now on whether or not we do get a second cut quickly from the central bank, right? They'll they'll be looking at this and they'll look at the prices side, they'll look at the demand side. And both of those are pointing towards another rate cut coming at some point in the near future, probably not July, but September, almost certainly now. I think prices disinflation is happening. The eurozone is seeing price pressure dissipate. There's a little bit of pockets of strength still in wages and in services. But even then, when you look at the more timely data, that is coming off at quite a pace. And the other thing to remember is that the ECB doesn't really want growth to be massively above trend at this juncture. It doesn't want the economy overheating. We have .3 in one Q. We don't want it much faster. I think they've they've got .4 for two Q. So actually this might be a relief to them. Yeah. The, the, the, the, the commentary also is the pace of output inflation also eased in June and was at the at an 8 month low. So that maybe is consistent with what you're saying about this, giving maybe some clarity to the ECB. Jamie, how much of this is how much on the manufacturing side is down to what we're seeing out of China? Can you draw a line between the weakness we're seeing in manufacturing and the weakness we're broadly seeing in the Chinese economy? Is there a strong connection there? I mean, I think it's certainly part of the story is that, I mean, there are a number of structural factors, aren't there? So you've got weakness in Chinese demand, which is kind of a cyclical element. You also have the fact that China is just moving up global value chains and now providing much stiffer competition with, with particularly German exports than it has done in the past. And at the same time, obviously, you know, we've we've lost this abundance of cheap gas. So that's really challenging a lot of business models across Europe. So I think it's very unlikely we're going to return to anything like the sort of pre pandemic, pre war trend for industry in Europe. The question is how, how quickly can the economy reorientate and services pick up the slack. And you know, we we are now seeing that at least now with consumers being able to spend that will help in in the commentary surrounding the French data, S&P made the point that they expected a boost from the Olympics. And I'm wondering whether the danger is there that that gets supersededed by the impact of the election. How should we think about what impact that election is likely to have, do you think? Well, it's hard to see it at the moment in, in the PMI data because we, we know that the survey was after the snap election was called. So it should be recorded in there. But what we don't see is a particularly different performance for France relative to say, Germany. I mean, Germany fell as well. So I don't think we're we're seeing anything yet, but clearly we there's just been a huge amount of uncertainty injected into the policy outlook. The the different candidates for for leading France have completely different visions of what the future looks like. And there is obviously the huge fiscal risk here because at least 2, two of the three contenders want to want to spend quite a bit more money at a time when France is pretty indebted and interest rates are going up on their on their borrowing costs. So it, it's going to be, it's going to be a difficult moment over the, over the coming few weeks. And then when we get more clarity on what those policies look like, we should we should hopefully get some, some, some resolve there.

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