Brace yourselves, euro traders! The top European economies are gearing up to release their PMIs this week, and here’s what to expect.
But first, let’s have a quick rundown on what these figures mean:
What in the world is a PMI?
The purchasing managers index (PMI) comes from a survey conducted among a few hundred purchasing managers in major business sectors, such as the manufacturing and services industries.Respondents are asked for opinions on employment, inventory levels, new orders, and production and supplier deliveries for the next 12 months. They note if these factors have risen/improved, fallen/deteriorated, or remain unchanged.
An index reading of 50.0 and above hints at optimism among the manufacturers, which could lead to industry expansion.
Consequently, a reading of 49.9 and below denotes pessimism and possible industry contraction.Traders watch PMIs because they act as leading indicators for the business performance. In addition, many central banks also look at PMI readings in making their monetary policy decisions.
In the eurozone, these PMIs are released per country, by industry, and as aggregate readings for the region.
Here’s how the numbers have been looking over the past year:
The eurozone services sector has come a long way since the onset of the COVID-19 pandemic last year, recovering from its lows in April 2020 to enjoy a few months of expansion from June to August.
Since then, activity has slowed and dragged the readings back below 50.0 to signal industry contraction.
France is expected to post a slight dip from 45.6 to 45.5 while Germany could show an improvement from 45.7 to 46.4 in March, likely bringing the eurozone services PMI up from 45.7 to 46.1 this month.
The manufacturing sector paints a more optimistic picture, as the readings have pulled up from the bottom in April 2020 are still steadily climbing over the past few months.
In fact, the PMIs are all hovering above 50.0 for Germany, France, and the entire region, reflecting sustained industry growth despite headwinds.
For this month, France is expected to show another improvement from 56.1 to 56.4 while Germany could print a dip from 60.7 to 60.4. This should be enough to bring the eurozone manufacturing PMI down to 57.9 to 57.5, reflecting a slower pace of growth.
How might the euro react?
It depends on how the actual results turn out, of course!While the forecasts seem to be leaning on the optimistic side, it might also be helpful to keep in mind that another set of lockdowns have been imposed this month.
These restrictions likely weighed on business sentiment and activity once more, which might have impacted hiring, new orders, and deliveries.
Even if the latest batch of PMI readings hit their marks or post upside surprises, the shared currency might not necessarily have a bullish reaction. After all, euro traders could take upbeat figures with a grain of salt, knowing that business outlook has once again taken a serious downturn.