October has proven something of a struggle
for the Eurozone nations. The single currency’s price has remained low
throughout, and the continued reverberations of the Greek crisis have been felt
within the region, exacerbating new fears surrounding the Volkswagen scandal.
As a result, many expected industrial
growth to remain slow, yet recent figures from the US’s Manufacturing
Purchasers’ Index (PMI) have proven to be surprisingly promising. With a
healthy growth identified over the course of October, we look at the impact
this will have on your trades going forwards…
How
PMI Scores Work
A key indicator of economic growth within a
nation is the US’s seasonally adjusted PMI. It has long been posited as a
primary identifier of the financial and manufacturing performance of a locale,
and a positive performance often prefaces a rise in the value of a nation’s
currency.
The Eurozone’s PMI score is calculated
based on the services and manufacturing conditions in eight key countries:
Germany, France, Spain, Italy, Ireland, Greece, Austria, and the Netherlands.
Where the assemblage ranks below fifty, this indicates a contraction of
activity; where it ranks above, it indicates an expansion; and where it remains
the same, activity levels have remained static.
October’s
PMI Results
October proved to be a surprisingly healthy
month for those countries that are part of the Eurozone. With figures rising
from 53.1 in September to 54 this month, this places its performance well above
the neutral 50 threshold, indicating promising signs of a continued economic
recovery.
Perhaps more interestingly, this figure
also ranks above the figure touted by economists, who expected it to remain
around the 53 mark.
This result was particularly surprising
because the figure placed not only well above what was expected, but also
constituted a two-month high for the beleaguered nations, and one of the
strongest monthly expansions seen over the past four years.
Germany:
The Star Turn
Despite fears over the continued impact of
the Volkswagen scandal, the Eurozone’s largest economy delivered an incredibly
positive performance, scoring 54.5, up from 54.1 in September.
A
Less Promising Performance for some Sectors
Unfortunately, continued economic recovery
cannot be taken as gospel on the back of these results, as some sectors fared
better than others.
Of those less fortunate, the Manufacturing
PMI Output Index showed a marked fall in performance. Although it had ranked at
53.4 just one month ago, it fell to 53.3, its poorest score in five months.
The
Fate of the Euro
The results of the latest PMI proved to
have positive consequences for the euro, which has continued to lag behind many
of its European and international competitors.
Indeed, immediately following the
publication of this data, the single currency experienced a slight rise versus
the dollar, and with renewed faith in the euro, this is a trend that may well
continue.
However, this is not information that
traders should immediately seize upon. Although current data seems to have been
interpreted as positive, leading to a slight rise in the euro, Markit have been
quick to comment thus:
“Unless the PMI business activity and price
indices pick up in coming months, the relatively weak growth and deflation
signalled by the survey will add to expectations that the ECB will step up its
quantitative easing programme.”
In addition, it’s also important to note
that these results have been markedly more upbeat that the competing figures
produced by the Institute for Supply Management. These indicated that
manufacturing growth had essentially stalled in October, leading to a less
promising outlook for the remainder of the year.
So what does this mean for euro traders going forwards? Simply this: proceed with caution.
