Wednesday sees the release of a series of data points from around the world that typically have an impact on the markets. Global PMIs surveys are among the ‘freshest’ data available to traders. The flash figures, which we will be getting now, are the most advanced data points to get an idea of what’s going on with the economy.
That’s because the flash PMI figures include data from the survey that is being currently conducted. That is, the upcoming data has been collected over the last two weeks, making it the most up-to-date view of the economic conditions that businesses are facing. This is important for Europe in particular, because it includes the full impact of the latest ECB decision.
The Doubts on the Decision
Last week the ECB left its target rate unchanged at 3.75%, essentially keeping in place the policy that was enacted a month earlier when they did the first rate cut of the cycle. The thing is, the policy statement and President Christine Lagarde made it abundantly clear that the next meeting is “wide open”. That means there could be a rate cut just as easily as nothing to happen. Economists believe that a rate cut is coming at the next meeting, but the market is not so sure.
In order to get a better sense of what could happen, traders are looking very closely at the data. And PMI figures offer some valuable insight, as they show how well the manufacturing and services sector are doing. The problem for most central banks right now, but it’s particularly an issue for the ECB and the BOE, is that the services sector remains robots because of tourism, and that’s raising inflation. So, services PMI data might once again supercede manufacturing figures, as investors look for a slowing down in this key sector as a means to facilitate a rate cut.
What To Look Out For
First up is French data, with the Euro’s second largest economy expected to remain in contraction, but advance a bit towards escaping that condition. Services PMI is forecast to remain unchanged at 49.6, just 4 decimals shy of returning to expansion. It’s the manufacturing sector forecast at 45.8 (up from 45.4 prior) that’s seen weighing down on the economy.
Germany is expected to continue to advance into expansion, thanks primarily to its services PMI. That’s seen growing to 53.5 from 53.1 prior, likely keeping up the pressure on prices. Germany’s manufacturing sector is expected to stage a minor recovery but stay firmly in contraction at 43.8 compared to 43.5 prior.
Across the channel, the UK has both of its sectors in expansion, leading to the BOE to likely delay rate cuts much more than the ECB. The services sector is seen leading the way at 53.0, a massive jump over the 52.1 pior. Manufacturing is seen expanding at a more leisurely pace to 51.1 from 50.9 prior.
All of this contrasts with the US which is seen well into expansion, also thanks to the service sector. This could make it complicated for the Fed to deliver on the expected September rate cut. But US Services PMI is at least trending in that direction, ticking down to 55.0 from 55.3 prior. Manufacturing is seen improving marginally to 51.8 from 51.6 prior.