The Euro Area’s economic recovery is facing uncertainty as recent Purchasing Managers’ Index (PMI) data points to weaknesses in the region. While global equities saw modest gains and crude oil prices surpassed USD 85 per barrel, the Norwegian Krone (NOK) strengthened due to a hawkish stance from the Norges Bank. On the other hand, the Japanese Yen (JPY) weakened as oil prices rose, prompting concerns about potential FX intervention from the government.
In bond markets, there was some tightening of spreads within the euro area following a volatile reaction to French President Macron’s announcement of snap elections. However, the French-German yield spread remains wider compared to before the EU parliament election. The European Commission has placed countries like France and Italy under Excessive Deficit Procedures, signaling the need for reforms to improve public finances.
Central banks had important meetings during the week, with the Norges Bank raising inflation concerns and the Swiss National Bank (SNB) opting for a rate cut amid a strong Swiss Franc. The Bank of England kept its rate unchanged at 5.25% due to high core inflation levels. Euro area PMI data released on Friday showed weaker-than-expected results, leading to lower Bund yields and a slight depreciation of the Euro. The service sector recovery slowed down, while manufacturing continued to decline.
In Japan, PMIs were also weak, indicating a cooling service sector and subdued price pressures. Meanwhile, Chinese economic data suggested a fragile economy, with the housing market remaining a key concern. Looking ahead, upcoming inflation data releases from France, Spain, and Italy will provide further insights into the euro area’s economic performance. The French National Assembly elections could result in a “hung parliament,” potentially easing market concerns about excessive spending.
The overall economic outlook remains uncertain, with mixed data from various regions pointing to ongoing challenges and vulnerabilities. It is essential for policymakers to address these issues and implement necessary reforms to support sustained economic recovery.