Eurozone Business and Consumer Survey Sends Gloomy Signals

It was a busy start to the European session. Business and consumer confidence figures drew interest, along with consumer expectation numbers for February.

Following mixed numbers from the Eurozone last week, the EUR/USD needed positive stats today to avoid a further pullback. Consumer sentiment remains a consideration for the ECB and the economic outlook.

The Eurozone Business and Consumer Survey Index slipped from 99.9 to 99.7 in February versus a forecasted 101.0.

According to the EU Commission,

• Confidence across the industrial sector deteriorated, with the Industrial Sentiment Index falling from 1.2 to 0.5 versus a forecasted 2.0.
• There was also a deterioration in service sector confidence, with the Services Sentiment Index declining from 10.4 to 9.5%. Economists forecast an increase to 12.4.
• Significantly, consumer inflation expectations showed little movement, falling from 17.8 to 17.7.

The expectation of a modest decline in inflation will be negative from an ECB perspective. Expectations of a downward trend in consumer price inflation would support consumer confidence and fuel spending.

In the latest ECB Economic Bulletin, the ECB noted that rising wage growth and declining energy price inflation should ease the loss of purchasing power and support consumption. Consumer confidence would need to improve to support the ECB’s outlook on consumption.

Today’s stats will give the ECB food for thought. The ECB may not see the needed pickup in consumption to support growth and raises the possibility of a deeper recession.

EUR/USD and DAX Response to Eurozone Business and Consumer Survey

Ahead of today’s data, the EUR/USD fell to an early low of $1.05328 before rising to a session high of $1.05614.

However, in response to the consumer and business sentiment numbers, the EUR/USD rose to a high of $1.05530 before falling to a low of $1.05487.

At the time of writing, the EUR/USD was up 0.04% to $1.05496.

While the EUR/USD showed a bearish response to the stats, the DAX responded favorably to the numbers, gaining 0.18% in reaction to the survey results. The DAX was up 1.45% this morning. A weaker EUR/USD would support demand for German goods.

Up Next

After the latest round of euro area stats, investors need to monitor ECB member speeches. ECB Chief Economist Philip Lane gives a lecture on Macro-Financial Stability in the EU. Additionally, investors should monitor ECB Executive Board member commentary with the media.

It is a relatively busy day on the US economic calendar. Core durable goods orders for January will be in the spotlight. Following the latest round of US stats, better-than-expected core durable goods orders would further fuel expectations of a more aggressive Fed interest rate trajectory to bring inflation under control.

Pending home sales figures for January will also draw interest. However, US mortgage rates fell from October to January, which drove demand. In contrast, US mortgage rates rebounded in recent weeks, with the shift in sentiment toward Fed monetary policy pushing US mortgage rates higher. Mortgage applications have tumbled in response.

Following the latest Core PCE Price Index numbers, investors should also monitor FOMC member chatter.