Back
16 Dec 2014
Better Eurozone PMI, but deflation risk has not disappeared – ING
FXStreet (Barcelona) - Peter Vanden Houte of ING notes that the Eurozone flash PMI came out better than consensus at 51.7, implying that the weak economic recovery is on track, but the composite out price index indicates that deflation risk still persists.
Key Quotes
“The Flash composite PMI for the Eurozone came out at 51.7 in December (after 51.1 in November), slightly above consensus expectations. Both the Manufacturing (50.8) and the Services PMI (51.9) increased on the back of somewhat better activity in the periphery.”
“The French composite PMI rose to 49.1, a four-month high, but still below the 50 boom-or-bust level. Germany saw a decline in its composite PMI to 51.4, with improving confidence in the manufacturing sector not enterily compensating for the softening in the services sector.”
“The PMI indicates that the weak economic recovery remains on track. At the same time the risk of deflation has not disappeared, as the composite output price index came out at 48, implying that European firms cut prices for the 33rd month in a row.”
“The countdown to the crucial meeting of the Governing Council on the 22th of January has now started, meaning that all pieces of new information have become crucial to tilt the decision in one or the other direction. Today’s PMI figures clearly give some ammunition to the doubters in the Governing council to keep up their resistance against QE involving the purchase of sovereign bonds.”
“That said, Mario Draghi is likely to continue to emphasis the ECB’s mandate i.e. guaranteeing price stability in the medium term. With the 5yr 5yr forward break-even inflation rate now at 1.75, the lowest level ever, there are indeed reasons to fear that the oil price decline is actually “unanchoring” inflation expectations.”
“In the regards, we continue to pencil in an announcement of sovereign QE in January, with the details of the program spelled out in March. This should exert renewed downward pressure on the euro exchange rate in the first quarter of 2015.”
Key Quotes
“The Flash composite PMI for the Eurozone came out at 51.7 in December (after 51.1 in November), slightly above consensus expectations. Both the Manufacturing (50.8) and the Services PMI (51.9) increased on the back of somewhat better activity in the periphery.”
“The French composite PMI rose to 49.1, a four-month high, but still below the 50 boom-or-bust level. Germany saw a decline in its composite PMI to 51.4, with improving confidence in the manufacturing sector not enterily compensating for the softening in the services sector.”
“The PMI indicates that the weak economic recovery remains on track. At the same time the risk of deflation has not disappeared, as the composite output price index came out at 48, implying that European firms cut prices for the 33rd month in a row.”
“The countdown to the crucial meeting of the Governing Council on the 22th of January has now started, meaning that all pieces of new information have become crucial to tilt the decision in one or the other direction. Today’s PMI figures clearly give some ammunition to the doubters in the Governing council to keep up their resistance against QE involving the purchase of sovereign bonds.”
“That said, Mario Draghi is likely to continue to emphasis the ECB’s mandate i.e. guaranteeing price stability in the medium term. With the 5yr 5yr forward break-even inflation rate now at 1.75, the lowest level ever, there are indeed reasons to fear that the oil price decline is actually “unanchoring” inflation expectations.”
“In the regards, we continue to pencil in an announcement of sovereign QE in January, with the details of the program spelled out in March. This should exert renewed downward pressure on the euro exchange rate in the first quarter of 2015.”