Data-driven insights and analysis from our investment team every week.
At the end of July in Chart of the week, we highlighted worrying signs for the euro area economy as all business sentiment indicators (PMIs) seemed to be heading towards contraction territory (below 50). The following month did give some relief with both the Services and Composite PMIs showing a reasonable rebound. There was a fear that this just reflected a short-term boost in activity in the region due to the Paris Olympics.
Last week, we had the latest reading and that seems to be the case with the downward trend resumed. Both Manufacturing and Composite business sentiment are now in contraction territory and Services at 50.5 is just about expanding. It is unclear what will change this trend in the short-term. Countries such as France and Italy are under pressure to maintain fiscal tightness, so there will be no help there. A more buoyant China would be a help but only for particular sectors. The pressure is building for the European Central Bank (ECB) to act but it stresses its mandate for controlling inflation not maintaining growth. However, as we found in the Draghi period, this can be compromised if the economic performance becomes extreme. It remains the best region for fixed income exposure.
This is a marketing communication.
