EUROPEAN DATA WRAP: PMIs point to further inflation pressures, dismal German trade & another fall in Swiss CPI

Analysis details (15:00)

EZ Final PMIs, July

• Services 50.9 vs. Exp. 51.1 (Prev. 51.1); Composite 48.6 vs. Exp. 48.9 (Prev. 48.9)


• The revision lower for the service sector of the economy brings it ever closer to the contractionary threshold and is a worrying sign given that services has been providing support to an economy that is otherwise being impacted by a pronounced manufacturing slump. Of note for the ECB and policy makers at the Council/Commission level is the diverse performance of economies within the EZ. As the likes of Spain are still posting strong performance for the services sector while other areas such has France and Italy are coming under increasing pressure.


• Continuing with the ECB, policymakers main point of concern within the data stems from the German services print which found that such firms are still faced with “rapidly increasing costs” which, fortunately for the firms but less-so for the ECB, they are “still able to pass at least part of the burden of higher costs through to customers.”. Overall, the heightened inflationary concern the series poses is underscored by finding from HCOB that “Germany’s services output price inflation even went back up in July”.

EZ Producer Prices, June

• YY -3.4% vs. Exp. -3.1% (Prev. -1.5%); MM -0.4% vs. Exp. -0.2% (Prev. -1.9%)


• Overall, a welcome finding for policy makers which underscored the reduced costs firms are facing as supply chains continue to heal. The internals show a continued easing for intermediate goods and a continuation of last month’s figures for capital and consumer goods. With the largest downside in the EZ figure being driven by intermediate goods and energy; furthermore, the YY data makes clear that the bulk of the headlines downside is a function of reduced energy prices as the base effects from 2022 continue to leave the series.

German Trade, June

• Trade Balance, EUR, SA 18.7B vs. Exp. 15.0B (Prev. 14.4B)


• Exports MM 0.1% vs. Exp. 0.3% (Prev. -0.1%); Imports -3.4% vs. Exp. -0.3% (Prev. 1.7%)


• Further evidence of the pressure in the German economy, with the data adding to the chorus of releases that point to continued stagnation or a return to contraction for the bloc’s largest economy. The internals are similarly concerning, featuring a -0.2% drop in exports to the US and a marked 5.9% decrease to China. Given the ongoing pressure in the US and the ongoing re-opening of the Chinese economy alongside improvements in their ability to produce things internally they would otherwise have imported, the near-term outlook remains weak for these metrics.

Swiss CPI, July

• YY 1.6% vs. Exp. 1.6% (Prev. 1.7%); MM -0.1% vs. Exp. -0.2% (Prev. 0.1%)


• A print that is below the SNB's Q3 CPI YY forecast of 1.7%, a forecast which was set at the June gathering. However, recall that the SNB expects headline inflation to lift back above the 0-2% target band from Q1-2024 onwards and remain above this for the entirety of the forecast horizon, currently until Q1-2026. Given the June and July’s figures have both been below their respective quarters forecasts, a continuation of this trend may well prompt a revision of the SNB’s forecasts and by extension their tightening plan. At this point, it is too soon to make a firm judgement on the September meeting; market pricing is indicative of this and is split relatively evenly between unchanged and another 25bp hike.

UK Final PMIs, July

• Services 51.5 vs. Exp. 51.5 (Prev. 51.5); Composite 50.8 vs. Exp. 50.7 (Prev. 50.7)


• A continuation of the strong performance for the key service sector and by extension economy as a whole, though as always it is worth caveating that PMIs do not encapsulate significant swathes of the UK economy. Evidently the PMI has been overshadowed by Threadneedle St., but nonetheless on the inflation front respondents “widely commented on strong cost pressures due to higher salary payments in July”, a finding that remains a point of concern for the BoE and the subject of a large chunk of the August BoE press conference.

03 Aug 2023 - 15:00- Fixed IncomeData- Source: Newsquawk