Flash PMIs: What to Expect from Eurozone Data

In
March,
the
seasonally
adjusted
HCOB
Eurozone
Composite
PMI
Output
Index
–
a
weighted
average
of
the
HCOB
Manufacturing
PMI
Output
Index
and
the
HCOB
Services
PMI
Business
Activity
Index
–
rose
from
49.2
of
February
to
50.3.
It
was
led
by
the
service
sector,
where
the
index
rose
to
51.5.
The
eurozone
economy
also
returned
to
growth
for
the
first
time
since
May
2023.

In
a
note,
Goldman
Sachs
writes
that
we
are
seeing
“continued
improvement
in
the
euro
area
headline
numbers,
coupled
with
continued
optimism
for
the
upcoming
year”.

What
does
PMI
Data
Mean
for
Investors?

As
the
earnings
season
is
kicking
off,
the
PMI
survey
provides
important
insights
on
what
to
expect.
According
to
Goldman
Sachs, “the
economic
data
is
inflecting,
and
European
earnings
have
not
(yet)
benefited
from
this
pick-up”.

According
to
the
investment
bank,
in
Europe,
consensus
expects
first-quarter
earnings
per
share
(EPS)
to
fall
15%
on
annual
basis
for
companies
that
provide
quarterly
data.
The
consensus
also
expects
that
the
median
company
in
the
Stoxx
600
to
have
flat
earnings
in
the
first
quarter.

“With
lower
earnings
expectations,
we
think
the
bar
to
beat
expectations
is
not
too
high
and
that
the
improvement
in
the
cyclical
backdrop
should
provide
room
for
positive
commentary
from
companies
and
potentially
feed
through
to
upgrades
to
2024
guidance,”
added
Goldman
Sachs’
analysts.
They
expect
the
positive
earnings
surprise
to
be
broader
than
in
the
first
quarter,
where
it
was
mainly
concentrated
in
large
caps
and

GRANOLAS.

What
to
Expect
from
ECB
in
June

PMI
survey
provides
important
insights
for
future ECB
interest
rate
decisions.
March
survey
data
also
signalled
broader

easing
of
inflationary
pressures
as
the
rate
at
which
operating
costs
and
selling
charges
are
increasing,
fell.

Commenting
on
the
data,
Cyrus
de
la
Rubia,
Chief
Economist
at
Hamburg
Commercial
Bank,
says
that
if
the
trend
continues,
it
will
probably
be
welcomed
by
the
European
Central
Bank
(ECB),
However,
“it’s
premature
to
discern
a
clear
trend
from
this
data”.

At
the
April
meeting,

the
ECB
further
signalled
a
rate
cut
in
June,
citing
both
a
slowdown
in
wage
growth
and
independence
from
Federal
Reserve
monetary
policy
decisions.
The
pace
of
cuts
beyond
June,
however,
remains
uncertain
and
will
depend
on
the
data.
Goldman
Sachs
forecasts
four
sequential
25
basis
points
cuts
this
year
(June,
July,
September
and
December)
and
three
(quarterly)
in
2025,
to
reach
a
terminal
rate
of
2.25%.

Nomura
expects
four
cuts
of
25bp
this
year,
but
only
two
in
2025,
bringing
the
repo
rate
to
2.5%.
It
adds
that
“ECB
can
cut
rates
independently
of
the
Fed,
so
long
as
the
macroeconomic
cycle
in
the
euro
area
decouples
from
that
of
the
US,
and
the
inflation
data
in
the
euro
area
allows
the
ECB
to
diverge
from
the
Fed.”

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