Financial markets await Purchasing Managers Index's 'flash' forecasts (PMI) These are initial forecasts for the current month and are subject to revision.
In the eurozone, S&P Global's HCOB eurozone PMI bulletin released on Thursday is the latest indicator of economic health, after the European Central Bank revised down its 2024 GDP growth forecast at its March meeting. It will provide a snapshot. The consensus estimate for the composite index in March is 49.7, still just below the contraction-to-expansion line, according to FactSet. The manufacturing PMI index is expected to be 47, and the services PMI index is expected to be 50.5.
The seasonally adjusted HCOB Eurozone Composite PMI Production Index, a weighted average of the HCOB Manufacturing PMI Production Index and the HCOB Services PMI Business Activity Index, rose to an eight-month high of 49.2 in February from 47.9 in January. . Although the euro area economy remains in contractionary territory, it showed signs of stabilization in February.
“While total production fell for the ninth consecutive month, the contraction was modest and the slowest since the middle of last year. Notably, service providers recorded a slight improvement in business activity, but , offset by further significant declines in factory production,” S&P said in a note.
What does PMI data mean for investors?
The PMI survey provides important insight into future ECB interest rate decisions. According to Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, his main insights are twofold.
1) Production prices in the service sector continue to rise at an accelerating pace, mainly driven by wage increases.
2) The unexpectedly strong pricing power shown by service providers amid an economic downturn and forecasts for less than 1% growth in 2024 raises eyebrows. This raises concerns about the potential emergence of wage-price spirals and stagflation, especially given persistent structural labor shortages that threaten productivity.
Cyrus de la Rubia added: “Those who favor a belated rate cut are very likely to find support in the PMI findings.”
What to expect from UK PMI
PMI data is likely to dominate the headlines this week as it competes with UK inflation data and the Bank of England's interest rate decisions.
However, the current state of the economy is never far from markets and politicians, and the spring budget is still relatively fresh in memory. Note: According to the OBR, inflation is expected to return to 2% this year, and GDP is expected to grow by 0.8% in 2024 and to 1.9% next year. The UK economy had a positive outlook in January after falling into recession at the end of 2023.
Let's get back to presenting the data. On Thursday, S&P Global releases his PMI data and “overall” figures for manufacturing and services. 'Breaking' means the figures are provisional and subject to revision, particularly as they are extracted from a calendar month that has not yet ended.
PMI data represents the largest sectors of the UK economy, construction, services and manufacturing.
Last month's index was 53.8 for the services sector, a key part of the UK economy, and 47.5 for manufacturing. Here, 50 is the difference between expansion and contraction.
According to FactSet, the consensus for March's services PMI is expected to be 53.7, down slightly from February, while the manufacturing PMI is expected to be 47.8, higher than last month.
Signs of improvement – at least in terms of service
“The pattern is very similar in both the euro area and the UK, with services indicators showing signs of improvement, albeit from a lower base, while manufacturing in both regions is weaker,” said Michael Field, European equity market strategist at Morningstar. We are struggling,” he said.
“Services activity turned negative in the middle of last year, but is back on track again. This is particularly true for the UK, where last month's figures show strong activity in this sector. Manufacturing in both regions , has been hit hard by inflation, weak consumer demand, and rising energy prices. Inflation has fallen significantly in the last year, but it is the latter two problems that could take a significant amount of time to correct. “, Field concluded.
