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22 Feb 2016
Eurozone PMI disappointed with worrisome German slowdown - BBH
Research Team at BBH, suggests that the flash Eurozone PMI disappointed expectations.
Key Quotes
“As a result, the euro has been sold back toward $1.1060, where it broke out of the sideways pattern in early February. The PMI showed four things that are worrisome for ECB officials. Activity slowed. Business cut prices. Forward looking new orders are their weakest in a year. Hiring was the slowest in five months. The PMI will only further encourage expectations for additional ECB action when it meets again on March 10. The introduction of a tiered reserve system, which other central banks with negative policy rates have adopted, seems likely. The market leans toward a 20 bp rate cut. Some expect the asset purchases to be accelerated and extended.
The German slowdown is particularly worrisome. Its manufacturing fell to 50.2 from 51.9 in January. It is the weakest in 15 months. The French reading at 50.3 (up from 49.9) is above the German reading. The German composite, however, is at 53.8 (down from 54.1), while French composite slipped below 50 boom/bust (to 49.8), the lowest since January 2015. The Eurozone economy grew faster than the US in Q4 15, but this was a bit of a fluke. The divergence is likely to be evident again in Q1 16. The Eurozone economy is slowing while the US economy is re-accelerating, with the Atlanta Fed's GDPNow tracking 2.6%.”
Key Quotes
“As a result, the euro has been sold back toward $1.1060, where it broke out of the sideways pattern in early February. The PMI showed four things that are worrisome for ECB officials. Activity slowed. Business cut prices. Forward looking new orders are their weakest in a year. Hiring was the slowest in five months. The PMI will only further encourage expectations for additional ECB action when it meets again on March 10. The introduction of a tiered reserve system, which other central banks with negative policy rates have adopted, seems likely. The market leans toward a 20 bp rate cut. Some expect the asset purchases to be accelerated and extended.
The German slowdown is particularly worrisome. Its manufacturing fell to 50.2 from 51.9 in January. It is the weakest in 15 months. The French reading at 50.3 (up from 49.9) is above the German reading. The German composite, however, is at 53.8 (down from 54.1), while French composite slipped below 50 boom/bust (to 49.8), the lowest since January 2015. The Eurozone economy grew faster than the US in Q4 15, but this was a bit of a fluke. The divergence is likely to be evident again in Q1 16. The Eurozone economy is slowing while the US economy is re-accelerating, with the Atlanta Fed's GDPNow tracking 2.6%.”