Financial markets are waiting for future “flash” forecasts. Purchasing Manager Index™ (PMI®) These are initial forecasts for the current month and are subject to revision.
In the eurozone, S&P Global's HCOB Flash Eurozone PMI released on Tuesday will provide the latest snapshot of the economy's health after better-than-expected first-quarter activity data. According to FactSet, the consensus forecast for the composite index in April is 50.6, above the contraction-to-expansion line (50).
The HCOB Eurozone Composite PMI Production Index (the weighted average of the HCOB Manufacturing PMI Production Index and the HCOB Services PMI Business Activity Index) rose to 50.3 in March from 49.2 in February, on a seasonally adjusted basis. The index rose to 51.5, led by the services sector. The eurozone economy also returned to growth for the first time since May 2023.
“Eurozone headline numbers continue to improve and we remain optimistic for next year,” Goldman Sachs said in a note.
What does PMI data mean for investors?
As earnings season begins, the PMI survey provides important insight into what's ahead. According to Goldman Sachs, “economic indicators have been volatile and European earnings have not (yet) benefited from this upturn.”
In Europe, the consensus forecast is for first-quarter earnings per share (EPS) for companies that provide quarterly data to decline by an annualized 15%, the investment bank said. Consensus also expects first-quarter earnings for the Stoxx 600 median company to be flat.
Analysts at Goldman Sachs said, “While profit forecasts have declined, we believe the hurdles to beat expectations are not too high, as the improving business cycle backdrop provides room for companies to make positive comments, and we believe that 2024 “This may be reflected in the revised outlook,” he added. They expect the positive earnings surprise to be more widespread than in the first quarter, when it was mainly concentrated in large-cap stocks and Granolas.
What to expect from the ECB in June
The PMI survey provides important insight into future ECB interest rate decisions. March survey data also suggests that inflationary pressures will ease broadly as the rate of increase in operating costs and sales commissions slows.
Commenting on the data, Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said that while the European Central Bank (ECB) would probably welcome this trend if it continued, “we cannot discern a clear trend from this data.'' “It's too early,” he said. data”.
At its April Governing Council meeting, the ECB hinted at further interest rate cuts in June, citing both slower wage growth and the Federal Reserve's independence from monetary policy decisions. However, the pace of reduction after June remains unclear and will depend on data. Goldman Sachs predicts that there will be four consecutive 25 basis point rate cuts this year (June, July, September, December), and three (quarterly) rate cuts in 2025, with the final We expect interest rates to reach 2.25%.
Nomura expects four 25 basis point rate cuts this year, but only two in 2025, bringing the repo rate to 2.5%. Furthermore, he argues that “as long as the euro area macroeconomic cycle is decoupled from the US macroeconomic cycle and euro area inflation statistics allow the ECB to diverge from the Fed, the ECB can cut interest rates independently of the Fed.” added.
