German Manufacturing PMI Falls from 42.5 to 41.9 in March

On Tuesday, the German manufacturing sector was in the spotlight.

German Manufacturing PMI

In March, the German Manufacturing PMI declined from 42.5 to a five-month low of 41.9, slightly higher than the preliminary figure of 41.6.

According to the finalized survey,

• Supplier delivery times improved markedly, impacting on the headline figure.
• Purchasing activity slowed further, though the rate of decline was less than in February.
• The rate of job shedding was the most marked in three-and-a-half years, highlighting excess capacity issues plaguing the manufacturing sector.
• New orders continued to decrease, albeit at a less marked pace, with export orders falling at the slowest rate in 11 months.
• The weak demand environment pressured input prices, rising at the slowest pace since March 2023.
• Average factory gate prices declined at the fastest pace in five months. Firms attributed the decline in factory gate charges to competition for new business.
• Manufacturers were more optimistic about the 12-month outlook in hopes of improved demand in the second half of the year.

Shortly after the German Manufacturing PMI, the Eurozone Manufacturing PMI numbers garnered investor attention. The Eurozone Manufacturing PMI declined from 46.5 to 46.1 in March, up from a preliminary 45.7.

ECB Monetary Policy Impact Analysis

The Manufacturing PMI numbers followed the unexpected February slide in German retail sales. Significantly, recent economic indicators from Germany align with recent revisions to growth forecasts for the German economy.

These figures also bolster speculation of a June ECB interest rate cut. Persistently weak demand may further suppress inflationary pressures, potentially prompting a more dovish stance from the ECB.

However, the manufacturing sector accounts for less than 30% of the German economy. The ECB focus will likely remain on the services sector, the main contributor to euro area inflation. Finalized German Services Sector PMI numbers will be out on Thursday. According to preliminary numbers, the Services PMI increased from 48.3 to 49.8 in March.

EUR/USD Reaction to German Retail Sales

Before the finalized German Manufacturing PMI survey, the EUR/USD rose to a high of $1.07440 before falling to a low of $1.07246.

In response to the German Manufacturing PMI, the EUR/USD rose to a high of $1.07427 before falling to a low of $1.07300.

On Tuesday, the EUR/USD was down 0.07% to $1.07353.

Up Next

Later today, preliminary German inflation figures for March will warrant investor attention. Softer-than-expected inflation numbers could fuel bets on a May ECB interest rate cut. Economists forecast the annual inflation rate to ease from 2.5% to 2.2%.

However, the US economic calendar also needs consideration amidst shifting expectations of an H1 2024 Fed rate cut. The US JOLTs Job Openings Report and US factory orders will be in focus.

Economists forecast JOLTs Job Openings to fall from 8.863 million to 8.740 million in February. A less marked-than-expected decline could impact bets on a June Fed rate cut. Economists expect factory orders to increase by 1.0% in February after sliding by 3.6% in January. Better-than-expected numbers could support expectations the US economy will avoid a recession.

Beyond the numbers, investors must also monitor central bank chatter. FOMC members John Williams, Michelle Bowman, Mary Daly, and Loretta Mester are on the calendar to speak.