European update – Stocks bounce after PMI setback

Markets recover from initial post-PMI weakness

European equity markets have recovered from earlier weakness, following another disappointing batch of PMIs from the euro area, with stocks being supported by a weaker euro.

Source – Thomson Reuters Eikon

It’s going from bad to worse for the eurozone, with the latest PMIs for the region once again highlighting just how worrying the outlook has become. The block started to slow last year but the decline appears to have accelerated in recent months, with the manufacturing survey now giving contractionary readings for Germany, France and the euro area as a whole, with the former being well into the territory despite rebounding slightly to 44.5.

It’s been a staggering drop off that has forced Italy into recession, pushed Germany to the brink and weighed heavily on the currency just as the central bank was planning to bring a decade of stimulus to an end with a first rate hike this year since 2011.

That plan has collapsed before it really got going and instead we have new TLTROs and it won’t be long until people are asking questions about whether more QE will be necessary, only a matter of months after new purchases were brought to an end.

Euro dips on weaker figures

Naturally the euro is not responding well to the news, as it dipped below 1.13 against the dollar to trade in the mid-1.12 range. While we’re still a little bit from the recent lows, the path of least resistance certainly looks below as it becomes clear just how fragile the region still is.

EURUSD Daily Chart

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This is keeping the dollar well supported as other currencies win the race to the bottom, even as the Fed dramatically lowers its interest rate expectations and an economic slowdown and possible earnings recession looms. The grass is simply less green everywhere else.

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Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
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 Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. 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.