Tuesday, October 27, 2015

Eurozone Business Activity Better than Expected in October


October has proven something of a struggle for the Eurozone nations. The single currency’s price has remained low throughout, and the continued reverberations of the Greek crisis have been felt within the region, exacerbating new fears surrounding the Volkswagen scandal.

As a result, many expected industrial growth to remain slow, yet recent figures from the US’s Manufacturing Purchasers’ Index (PMI) have proven to be surprisingly promising. With a healthy growth identified over the course of October, we look at the impact this will have on your trades going forwards…

How PMI Scores Work
A key indicator of economic growth within a nation is the US’s seasonally adjusted PMI. It has long been posited as a primary identifier of the financial and manufacturing performance of a locale, and a positive performance often prefaces a rise in the value of a nation’s currency.

The Eurozone’s PMI score is calculated based on the services and manufacturing conditions in eight key countries: Germany, France, Spain, Italy, Ireland, Greece, Austria, and the Netherlands. Where the assemblage ranks below fifty, this indicates a contraction of activity; where it ranks above, it indicates an expansion; and where it remains the same, activity levels have remained static.  

October’s PMI Results
October proved to be a surprisingly healthy month for those countries that are part of the Eurozone. With figures rising from 53.1 in September to 54 this month, this places its performance well above the neutral 50 threshold, indicating promising signs of a continued economic recovery.     

Perhaps more interestingly, this figure also ranks above the figure touted by economists, who expected it to remain around the 53 mark.

This result was particularly surprising because the figure placed not only well above what was expected, but also constituted a two-month high for the beleaguered nations, and one of the strongest monthly expansions seen over the past four years. 

Germany: The Star Turn
This growth came as something of a shock to commentators, traders, and brokers like FxPro, particularly because Germany proved to be the assemblage’s star turn.

Despite fears over the continued impact of the Volkswagen scandal, the Eurozone’s largest economy delivered an incredibly positive performance, scoring 54.5, up from 54.1 in September.


A Less Promising Performance for some Sectors

Unfortunately, continued economic recovery cannot be taken as gospel on the back of these results, as some sectors fared better than others.

Of those less fortunate, the Manufacturing PMI Output Index showed a marked fall in performance. Although it had ranked at 53.4 just one month ago, it fell to 53.3, its poorest score in five months.


The Fate of the Euro

The results of the latest PMI proved to have positive consequences for the euro, which has continued to lag behind many of its European and international competitors.

Indeed, immediately following the publication of this data, the single currency experienced a slight rise versus the dollar, and with renewed faith in the euro, this is a trend that may well continue.

However, this is not information that traders should immediately seize upon. Although current data seems to have been interpreted as positive, leading to a slight rise in the euro, Markit have been quick to comment thus:

“Unless the PMI business activity and price indices pick up in coming months, the relatively weak growth and deflation signalled by the survey will add to expectations that the ECB will step up its quantitative easing programme.”    

In addition, it’s also important to note that these results have been markedly more upbeat that the competing figures produced by the Institute for Supply Management. These indicated that manufacturing growth had essentially stalled in October, leading to a less promising outlook for the remainder of the year. 

So what does this mean for euro traders going forwards? Simply this: proceed with caution.