Today, April 23rd, Purchasing Managers Index “Preliminary” Forecast (PMI) Released in the UK and Eurozone. These datasets are being closely monitored for signs of recovery in key economic sectors such as manufacturing and services. These are original estimates for the month and are subject to revision.
The euro zone economy expanded in April, led by strong growth in the services sector, according to preliminary PMI survey data provided by S&P Global today.
The seasonally adjusted HCOB preliminary Eurozone Composite PMI Production Index rose to 51.4 from 49.9 in March, well above the FacSet consensus of 50.8, pushing the eurozone economy beyond the line from contraction to expansion.
Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank (HCOB), commented on the PMI report and the recovery in the services sector:
“Several factors indicate that the recovery in the private services sector, which dominates the overall economy, is poised to sustain. First, there has been positive momentum in new business over the past two months, which may lead to bolder It is also linked to employment policy.''Second, the increase in output prices not only corresponds to the rapid rise in input costs, but also reflects service providers' confidence in setting prices.
“Finally, the recoveries are occurring simultaneously in the euro area's two most important economies, Germany and France. This suggests the existence of common factors, such as lower inflation and higher wages, and that these This has strengthened their purchasing power and contributed to the revival of the service sector.” ”
Services are booming, manufacturing is sluggish
The main driver in the euro area was the services sector, which increased for the third consecutive month in April after six months of decline. HCOB Flash Eurozone Services PMI came in at 52.9, comfortably beating expectations of 51.8.
However, the manufacturing PMI production index fell short of the expected 46.5 and came to 45.6, lower than March's 46.1.
HCOB's chief economist said the outlook for manufacturing could be brighter than the current downturn suggests.
“What can be said for euro area manufacturing is that job losses have eased slightly, with production falling at the slowest pace in a year in April. Otherwise, new business has declined rapidly along with the backlog of orders. and the situation remains quite bleak.
“Weakness in demand for industrial goods is evidenced by the sharp decline in the amount of raw materials purchased and the lack of improvement in inventory cycles. We expect manufacturing to recover by mid-year. Although expected, it is essential to consider “structural factors affecting the sector”
When will the ECB cut interest rates?
The European Central Bank is currently expected to cut interest rates in June, but the global landscape is changing again, particularly with regard to Fed interest rate expectations. Markets are beginning to reconsider the possibility of further interest rate hikes to curb inflation, but it turns out that interest rate hikes will be more robust than expected in the United States.
At the April Governing Council meeting, some ECB Governing Council members supported a rate cut, but deferred the decision until the next Governing Council meeting.
HCOB's Dr. Cyrus de la Rubia argues that there are many factors in the current economic data that should prompt the ECB to be cautious about cutting rates, but he still believes the first rate cut will take place in June. .
“PMI figures are poised to test the ECB's willingness to cut interest rates in June. The accelerating rise in input costs will likely be driven not only by rising oil prices but, more worryingly, by rising wages. and is causing scrutiny.”
“At the same time, companies in the services sector are raising prices at a faster pace than in March, raising expectations that services inflation will continue.”Despite these factors, we expect the ECB to cut interest rates in June. But I doubt whether the central bank will adopt a policy rate.'' Rather than the “realistic speed'' suggested by the ECB's François Villeroy de Galault, a more cautious approach is in order. Are expected. ”
