Eurozone data remains weak despite topping estimates

Summary:

• EU data tops estimates but remains pretty poor
• EURUSD remains in narrow range
• GBP treads water as Boris heads to France

A plethora of keenly followed industry surveys have shown a slightly healthier than expected take on the Eurozone economy, although it should be stressed that this comes against a pretty low bar. Manufacturing PMIs from France, Germany and the Euro area as a whole all topped consensus forecasts amongst analysts, but the beats were more due to fairly pessimistic predictions rather than a sign of a real strength. The data for Germany for instance remains at recession like levels with the reading of 43.6 making it 8 consecutive prints below the 50 mark which denotes expansion/contraction. 

While there was a pick-up in German manufacturing PMI for August the overall picture remains pretty bleak and the composite reading is dangerously near falling below the 50 mark and into contraction. Source: Bloomberg

Furthermore, the outlook for new orders makes for pretty grim viewing and doesn’t suggest a sustained recovery anytime soon. There’s also concerns that the weakness seen in manufacturing is spreading, with the German service sector activity falling to a 7-month low and while a reading of 54.4 is comfortably above contraction territory, it would not be too surprising to see this slip further in the coming months - particularly if manufacturing continues to languish around the current levels. 

The EURUSD is in a fairly narrow range and the move higher after the PMI beat has proven short lived. Source: xStation 

Boris to meet Macron 

The second stop on Boris Johnson’s European trip will see the UK PM meet with the French president for a working lunch. The meeting last night with German chancellor Angela Merkel failed to yield any real progress but at least the tone from both sides was fairly optimistic and constructive. However, Boris is unlikely to get as warm a welcome from Macron, who is one of the most pro-EU leaders in Europe and already set the tone for their meeting by warning that Brexit could turn the UK into a vassal state. 

Macron was also reportedly the last of the EU 27 leaders to agree on the extension to the Brexit deadline earlier this year and there’s a sense that he will take the hardest approach of all leaders from EU countries in negotiations. The pound continues to tread water near its recent lows, with traders clearly awaiting further clarity on the likely outcome of Brexit before committing to any high conviction positions.