UK inflation and Eurozone PMIs in focus

March 22, 2016 09:38 AM

A fairly volatile start to the week in Europe could continue on Tuesday as we get a number of key data points from both the euro area and the UK, while trade is likely to remain light in the run up to the Easter Bank Holiday weekend.

Manufacturing and services PMI data for Germany, France and the eurozone will be released throughout the morning and is expected to paint quite a bleak picture. This is likely to be particularly the case for the manufacturing sector, which has already suffered considerably as a result of the slowdown in emerging markets, most notably China.

The Japanese manufacturing PMI, released overnight, didn’t offer much hope having fallen back into contraction territory, as the new orders component slipped to 45.9, the sharpest contraction in more than three years. The slowdown in emerging markets, particularly China, is likely to be behind this steep contraction in export orders, which doesn’t bode well for the eurozone ahead of its PMI data.

ZEW economic sentiment and Ifo business climate surveys should shed additional light on the German economy today. While both surveys are expected to indicate a small improvement in sentiment, they are coming off the lowest levels since the end of 2014 so don’t offer much cause for optimism at this stage.

In the UK, focus will be on the inflation data which is expected to show price pressures remaining very subdued. Even the core reading is seen remaining at 1.2%, which is well below the Bank of England’s 2% target. Still, this has very gradually risen from 0.8% last summer and is likely to continue to do so at a fairly slow pace making any further monetary easing from the BoE unnecessary. Similarly, the start of the tightening cycle isn’t likely any time soon either, especially with the UK vote on EU membership due in three months time.

About the Author

Craig Erlam is senior market analyst at OANDA who also writes for OANDA’s Market Pulse site,