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EMU Inflation, PMI and US Manufacturing Data Undercut Euro

Posted by Joseph Trevisani on Feb 20, 2014 2:33:00 PM

With the European Central Bank already concerned with declining euro zone prices and a weakening recovery, inflation and PMI data from the Eurozone’s two largest economies gave the euro a strong push lower in European trading.

French inflation in January fell 0.6 percent on the month from a 0.3 percent rise in December, well under the -0.4 percent forecast.  It was the largest monthly drop in prices since January 2013.

Annual inflation in the EMU's second largest economy was unchanged at 0.7 percent in January as predicted, where it has been for three months.  Inflation has been on a steady if uneven decline for two years since reaching a post-financial crash high of 2.5 percent in December 2011.

The euro had already fallen from its 1.3763 high 45 minutes before the French data.  It then broke support at 1.3750 10 minutes prior to the release and the CPI data itself only gave the euro a nudge five points lower to 1.3729, at the point the day's low.

German PPI for January issued 45 minutes earlier thand French CPI was also weaker than predicted at -0.1 percent on the month and -1.1 percent for the year. Economists had forecast 0.2 percent and -0.8 percent respectively. The December figures were 0.1 percent for the month and -0.5 percent annually. There was no appreciable euro effect.

Both sides of the French purchasing managers index for January, released 15 minutes after the inflation information  were softer than forecast. Manufacturing slipped to 48.5 from 49.3 and services sank to 46.9 from 49.4. The forecasts had been 49.5 for manufacturing and 49.4 for services.

The euro fell sharply at this, losing more than 25 points from 1.3734 to 1.3706.

The last of the day's European statistics was German PMI released 30 minutes after the French version. Here too performance was short of expectations. Manufacturing sentiment fell to 54.7 from 56.5, missing the 56.3 forecast. However services rose to 55.4 from 53.1, bettering the 53.4 predictions.

Despite the surprise improvement in German services the euro dropped to its day's low at 1.3686 after the PMI data.

The ECB has been conducting public speculation over the past several months about monetary policy. With its main-refinancing rate at 0.25 percent several ideas for unconventional liquidity applications have been mentioned, negative interest rates and non-sterilization of sovereign assets held by the bank being the most prominent.

Today’s price and PMI data will add to the pressure on the central bank to provide a monetary lift to the eurozone economies and to dispel the gathering disinflation.

In American statistics the manufacturing sector PMI sentiment index from the London firm of Markit Economics is a newcomer to the field long dominated by the PMI report from the U.S Institute of Supply Management.

Nevertheless and perhaps because the Markit report for February is issued first, the ISM survey for February is not out until March 3rd, it has gained some traction.  Markit reported that its manufacturing index rose to 56.7 from 53.7 in January. Analysts had forecast 53.6.

The euro briefly dipped to 1.3711 from 1.3720 after the report but soon had climbed to 1.3728 on the back of a much weaker than expected Philadelphia Fed Business outlook Index at 10:00 am. From there the euro began a long slide to 1.3688, the New York low at the London close.

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Alpha Trader,  Bloomberg

ScreenHunter 2145 Feb. 20 14.59

French annual cpi

french mfg pmi

ger pmi


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