German and French PMI data for August printed mixed with French data producing a mild upside surprise while Germany’s composite reading hit a 38 month low. French Manufacturing PMI improved to 46.2 from 43.7 while services PMI rose above the 50 boom bust line to 50.2. In Germany however, Manufacturing improved hitting a 3 month high of 45.1 but services declined sharply to 48.3 from 50.1 slipping into a recessionary territory for the first time since 2009.

According to Markit economics, ”August data pointed to a steep and accelerated reduction in new business received by private sector companies across Germany. The overall pace of decline was the most marked since June 2009, reflecting sharp decreases in both the manufacturing and service sectors. Anecdotal evidence attributed the fall in new work to unfavourable underlying economic conditions and, in some cases, a continued weakening in demand from Southern Europe.”

The overall news suggests that economic conditions in the EZ remain challenging but may have bottomed out for the time being. Nevertheless, growth for the foreseeable future will have to come from the export sector as domestic demand remains weak. The reaction in the currency market was muted with EUR/USD rising above the 1.2550 level as the weak economic data only added to more speculation that both European as well as America monetary officials will maintain a highly accommodative stance given the slack in demand.

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