Eurozone flash PMIs to highlight recession risks as energy crisis worsens – Forex News Preview

The Eurozone economy may have notched up impressive growth in the second quarter, but conditions have started to deteriorate rapidly in the third quarter. The flash PMI estimates by S&P Global due on Tuesday will reveal whether business activity improved or slumped in August. Investors will likely be paying particularly close attention to Germany – Europe’s largest economy – as it is the most vulnerable from the energy crunch, which is showing no sign of easing. The euro, meanwhile, is headed for parity versus the US dollar after crashing below its sideways range.

From bad to worse

Things just seem to be getting from bad to worse in Europe this year. If the war in Ukraine wasn’t enough to derail the bumpy recovery from the pandemic, the worst drought in 500 years and the real prospect of energy rationing certainly could. Business confidence is plunging amid headwinds from multiple fronts, with stagnating growth in China being the latest.

There has been some relief at least from lower oil prices. As more of the price decline in crude oil gets passed on at the pump, and to a lesser extent, in electricity prices, this should provide a substantial boost for both consumers and businesses. However, Europe’s dependency on natural gas, and specifically, on Russian gas, means the energy crisis on the continent could outlast the surge in oil prices.

PMIs are ringing recession alarm bells

The negative risks have already started to materialize as Eurozone manufacturing activity contracted in July for the first time in two years, while the situation was even worse for Germany, with both the manufacturing and services sectors shrinking last month according to the PMI survey.

August’s flash estimates are unlikely to offer much respite in the run of gloomy headlines. The Eurozone’s flash manufacturing PMI is expected to decline from 49.8 to 49.0, while the services print is forecast to drop from 51.2 to 50.5. This would put the composite PMI at 48.8, signalling the start of a broadening decline in economic activity.

In Germany, the forecasts are notably more dire as the composite PMI is predicted to fall from 48.1 to 47.4, in what could be the beginning of a long and steep contraction.

Within reach of parity

The euro, which had been trapped between the $1.01 and the $1.03 levels for much of July and August, has just dived below this range and is at risk of breaching parity from a poor set of PMI figures. A rerun of July’s 20-year trough of $0.9950 slightly above the 261.8% Fibonacci extension of the June upleg now looks probable.

Alternatively, the euro could rebound towards its 50-day moving average around $1.0275 from any positive surprises in the PMI readings, as long as it can clear the hurdle of the 161.8% Fibonacci just beneath $1.02.

Whether the euro can again bounce off the parity mark will likely depend on the two big variables: what will happen to natural gas prices and supply, and how will the European Central Bank respond to the escalating gas crisis.

Can the ECB halt the euro’s decline?

The ECB’s hawkish tilt in July was pivotal in cementing support in the $1.01 region. Policymakers will probably maintain their pledge to rein in inflation when they meet on September 9. But hawkish soundbites may not be enough this time round.

The chances of tensions between Russia and Europe easing anytime soon are remote. Hence, the coming winter will almost certainly be difficult for countries that rely heavily on natural gas for their electricity needs, regardless of whether Moscow decides to completely cut off supplies, and rationing is looking increasingly unavoidable. A further slowdown in China’s economy would also deepen Europe’s woes, especially for German exporters.

Against such a backdrop, it’s hard to see how a recession can be averted, and more importantly, how the ECB can sound convincingly more hawkish than the Fed and put a floor under the beleaguered euro.

Avertissement : Les entités de XM Group proposent à notre plateforme de trading en ligne un service d'exécution uniquement, autorisant une personne à consulter et/ou à utiliser le contenu disponible sur ou via le site internet, qui n'a pas pour but de modifier ou d'élargir cette situation. De tels accès et utilisation sont toujours soumis aux : (i) Conditions générales ; (ii) Avertissements sur les risques et (iii) Avertissement complet. Un tel contenu n'est par conséquent fourni que pour information générale. En particulier, sachez que les contenus de notre plateforme de trading en ligne ne sont ni une sollicitation ni une offre de participation à toute transaction sur les marchés financiers. Le trading sur les marchés financiers implique un niveau significatif de risques pour votre capital.

Tout le matériel publié dans notre Centre de trading en ligne est destiné à des fins de formation / d'information uniquement et ne contient pas – et ne doit pas être considéré comme contenant – des conseils et recommandations en matière de finance, de fiscalité des investissements ou de trading, ou un enregistrement de nos prix de trading ou une offre, une sollicitation, une transaction à propos de tout instrument financier ou bien des promotions financières non sollicitées à votre égard.

Tout contenu tiers, de même que le contenu préparé par XM, tels que les opinions, actualités, études, analyses, prix, autres informations ou liens vers des sites tiers contenus sur ce site internet sont fournis "tels quels", comme commentaires généraux sur le marché et ne constituent pas des conseils en investissement. Dans la mesure où tout contenu est considéré comme de la recherche en investissement, vous devez noter et accepter que le contenu n'a pas été conçu ni préparé conformément aux exigences légales visant à promouvoir l'indépendance de la recherche en investissement et, en tant que tel, il serait considéré comme une communication marketing selon les lois et réglementations applicables. Veuillez vous assurer que vous avez lu et compris notre Avis sur la recherche en investissement non indépendante et notre avertissement sur les risques concernant les informations susdites, qui peuvent consultés ici.

Nous utilisons des cookies pour vous donner la meilleure expérience possible de notre site internet. En savoir plus ou modifier vos paramètres de cookies.

Avertissement sur les risques : votre capital est à risque. Les produits à effet de levier ne sont pas recommandés pour tous. Veuillez consulter notre Divulgation des risques