Eurozone Private Sector Expands for the First Time Since June

It was a busy start to the European session. Early in the day, German consumer sentiment figures drew interest.

The German GfK Consumer Climate Indicator increased from -37.6 to -33.9 in February versus a forecasted -33.0. While the GfK report drew interest, prelim private sector PMI numbers for France, Germany, and the Eurozone garnered more attention.

According to prelim figures, the French manufacturing PMI rose from 49.2 to 50.8, while the services PMI fell from 49.5 to 49.2. Economists forecast PMIs of 49.6 and 49.8, respectively.

Key takeaways from the prelim survey:

• Employment strengthened to a three-month high, with business confidence improving markedly.
• Cost pressures eased while prices charged rose at the sharpest pace since October.
• New business declined for a sixth consecutive month.
• Manufactures continued to record a more marked fall in new business.

German PMI numbers failed to deliver the hope of a near-term return to growth. The manufacturing PMI slipped from 47.1 to 47.0, while the services PMI rose from 49.2 to 50.4. Economists forecast PMIs of 47.9 and 49.6, respectively.

Key takeaways from the prelim survey,

• The services sector returned to expansion for the first time since June 2022.
• Manufacturing production continued to decline, with elevated inflation, tightening financial conditions, investment hesitance, and a decline in inventories (manufacturers) leading to a decline in the inflow of new work.
• Manufacturer purchase activity continued to slide, reflecting weaker demand and improving supply chain conditions.
• Input costs for manufacturers declined while remaining elevated across the services sector.
• Prices charged continued to rise at a marked pace.
• Despite manufacturing sector woes, the rate of staff hiring rose to a six-month high.
• Business confidence continued to improve, with sentiment turning positive for the first time since August 2022.

The Eurozone Private Sector Sends Mixed Signals

In January, the Eurozone manufacturing PMI increased from 47.8 to 48.8, with the services PMI up from 49.8 to 50.7. Economists forecast PMIs of 48.5 and 50.2, respectively. As a result, the Eurozone composite PMI increased from 49.3 to 50.2 versus a forecasted 49.8.

According to the January prelim survey,

• The euro area private sector returned to growth for the first time in seven months.
• Business confidence improved markedly, reflecting a shift in sentiment about the year ahead.
• Employment growth accelerated as firms prepared for a better-than-anticipated year ahead.
• Input cost inflation softened, while average selling price inflation accelerated across the private sector.

EUR/USD Price Action

Ahead of the stats, the EUR/USD fell to an early low of $1.08678 before rising to a high of $1.08919.

However, in response to the consumer sentiment and private sector PMIs, the EUR/USD rose to a post-consumer report high of $1.08981 before sliding to a post-PMI release low of $1.08665.

At the time of writing, the EUR/USD was up 0.04% to $1.08792.

Up Next

After a quiet start to the week, the US economic calendar will also draw interest, with prelim January private sector PMI numbers in focus. Following the disappointing ISM survey-based numbers for December, a deeper contraction in the services sector would give further evidence of a hard landing.

While no FOMC members are speaking today to influence, with the Fed having entered the blackout period on Saturday, ECB chatter will need monitoring.

Following today’s stats, ECB President Lagarde will also draw interest. Lagarde will speak via video at a roundtable, ‘the euro as a guarantee of resilience.’ However, Lagarde would need to deviate from recent forward guidance to move the dial.