A China economy slowing down along with the recent stumbles of the American economy have made investors focus on Europe. Gross domestic product figures released last week in the Euro zone surprised to the upside in aggregate. The biggest surprise was not that Germany missed the forecast underperforming at 0.3% vs an expected 0.5%, but rather the fact that France and Italy beat expectations. France posted 0.6% growth, the highest since 2011. Germany will continue to be the engine of growth for the European Union and its GDP miss can be explained by current macro conditions, but the fact that France and Italy are showing positive signs of the end of their stagnation along with the effects of the quantitive easing program launched by the European Central Bank in March 9.
Preliminary manufacturing purchasing manager’s indices (PMIs) will be released for China, France and Germany starting on the night of May 20 at 9:45pm EDT. China has not been able to print a reading over 50 in the last two months. Anything over 50 points to an expansion of the nation’s manufacturing industry. In other words China has been contracting for the last two months. The latest PMI came in at 49.2, which is close to expansion, but the Chinese industrial complex has not been able to keep it above the 50 benchmark for too long. The Chinese government has been proactive both in the use of monetary policy and verbal intervention in warning the market about a potential failure to reach 7 percent growth this year.
European PMI releases will another chance to France to pleasantly surprise the market. French manufacturing has struggled to impress in the first quarter of the year, but a cheaper currency as a result of an aggressive monetary policy by the ECB could start to have a positive impact on purchasing sentiment this month. The survey takes into account the opinion and insights of 400 purchasing managers and any hints of optimism could push the manufacturing PMI reading over last month’s 48 print.
The EUR/USD will react to the European flash PMI release in a week where productivity, inflation and central bank minutes take center stage.