PMI Improvements Shouldn’t Stall ECB Easing

Growth in the eurozone may pick up from its current uninspiring levels if this morning’s release of November PMI readings are anything to go by. The numbers were expected to remain broadly in line with those seen in October but it turns out both the manufacturing and services sectors outperformed in the eurozone this month, with employment and new orders sub-indices exceeding expectations.

While the data is encouraging and points to slightly stronger growth in the fourth quarter from the meagre 0.3% seen in the third, I don’t think it will dissuade the ECB from easing monetary policy at the meeting next month. The recovery in the eurozone is very fragile and these monthly improvements can quite easily be following by weak numbers next month. Moreover, while surveys can provide good insight into future growth potential, they can quite often offer false hope, so I don’t expect them to have much influence on the outcome of the December meeting.

The French services PMI fell short of expectations but we can’t read too much into the data as it was probably largely driven by the Paris terror attacks. While these are likely to negatively affect business in the short term, the impact should only be temporary and I would therefore expect the number to bounce back in the coming months. Overall, the numbers from France remain worrying though and continue to point to marginal growth in the country following years of slow reform and rising unemployment. With activity seen only improving at this marginal rate, the country’s recovery is likely to lag behind that of its neighbours for some time.

U.S. existing home sales are expected to fall to 5.39 million in October, from 5.55 million the month before. While this is a small setback, housing continues to be one of the bright spots for the U.S. economy with sales near the highest level since 2010. A strong housing market can provide a significant boost to the U.S. economy with consumers having more belief in the recovery and feeling better off as a result of rising property prices. This should provide the foundation for a boost in spending next year which has been lacking in 2015.


The euro has come under pressure against the dollar again on Monday and the PMI data failed to ease to pressure on it, which probably reflects the market view that the numbers will have no impact on the ECBs decision on 3rd December. The pair continues to find support around 1.06 and appears to lack the momentum needed to see it push for a move back to the next support level around 1.0450-1.05, which would see the pair trading around this year’s lows.


WTI Crude

WTI is coming under pressure again on Monday and has broken below $40 a barrel after failing to do so on numerous occasions. The break of $40 could be a key and prompt another wave of selling after stabilising throughout last week, which could bring the year’s lows into focus. In the meantime, it may find some support around $39.30 and $38.00 but these could just prove temporary, with $37.25 being the next major level.

WTI Daily

The S&P is expected to open 4 points lower, the Dow 38 points lower and the Nasdaq 8 points lower.

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Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.