Japan and China PMI Expands Europe Falters

Manufacturing in China and Japan returned to growth in June after months of decline but an unexpectedly sharp fall in French business activity dragged on the wider euro zone, surveys showed on Monday.

Beijing’s targeted stimulus measures and Japan’s improving labor market supported domestic demand in Asia’s dominant economies but the gap between the common currency area’s big two remains wide.

Germany and France went their separate ways again, with German business activity expanding robustly, albeit at a slower pace than last month, while France’s private sector shrank at the fastest rate in four months.

“The recovery has not gained as much traction as people had hoped. We’ve been highlighting the divergence between France and Germany for some time – it’s not just in the PMIs. It’s definitely a concern,” said Jessica Hinds at Capital Economics.

Markit’s Composite Purchasing Managers’ Index (PMI), based on surveys of thousands of companies across the 18 countries that use the euro and seen as a good indicator of growth, fell to 52.8 from May’s 53.5. That was well below the consensus for 53.5 in a Reuters survey, matching the lowest forecast polled.

Readings above 50 indicate expansion. Markit said that with a robust recovery taking place in some euro zone periphery countries, the data still point to second-quarter economic growth of 0.4 percent.

Germany, Europe’s largest economy, was again the driving force although its composite PMI eased to 54.2 from 55.6.

But the French index slumped to 48.0 from 49.3, its lowest reading since February.

“Déjà vu with the French numbers: worse than expected. Our own and the Banque de France’s forecast of GDP expanding by 0.2 percent in Q2 looks optimistic now,” said Holger Sandte at Nordea.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza