Mixed Data Poses Questions For Economic Outlook

The latest set of UK and eurozone PMI readings released today offered mixed views over the economic outlook for both. Service sector readings for both were seen improving in the flash reading for April while manufacturing readings were seen plunging further into negative territory. Given the higher interest rates and excessive inflation still present in the eurozone and the UK, the factory sector is clearly struggling, which is a theme seen globally amidst a higher cost of raw materials and disruptions to supply chains. However, overall PMI performance was seen rising given the heavy lift in service sector performance.

Eurozone PMI Review

In the eurozone, the manufacturing PMI was seen falling to 45.5 from 47.3 last month, undershooting expectations for a lift to 47.9. However, the services sector PMI was seen rising to 56.6, up from 55 prior and well above the 54.6 the market was looking for. Despite the drop in the factory sector reading, the composite PMI was seen increasing 54.4 from 53.7 prior, marking 11-month highs for the eurozone economy as a whole. Importantly, inflation measures were seen reducing further with input cost inflation seen dropping to its lowest level since Feb 2022. Average price inflation overall hit a two-year low, which will no doubt be a welcoming indication for the ECB that price pressures are moving in the right direction.

UK PMI Review

In the UK, the manufacturing PMI fell to 46.6 from 47.9 prior, well below the 48.3 the market was looking for. As with the eurozone data, however, the services PMI was seen rising to 54.9 from the prior and expected 52.9. The composite PMI was seen rising to 53.9, up from 52.2 prior and well above the 52.5 the market was looking for, hitting fresh 12-month highs. As with the eurozone data, input cost inflation was seen falling to its lowest levels since March 2021. However, overall price inflation was seen lifting slightly, in line with the recent UK inflation reading we saw.

Uncertainty In the Outlook

Overall, while the composite PMIs for both the eurozone and the UK were seen rising to their highest levels in around a year, the economic performance is clearly unbalanced given the weakness in the factory sector. Falling input costs are a welcome sign however, suggesting that factory sector performance should pick up soon. However, with further rate increases expected from both the ECB and the BOE there is a great deal of near-term uncertainty.

Technical Views

EURGBP

The correction lower from highs around .8976 has seen the market underpinned by the rising trend line from late 2022 lows. With price turning higher and momentum studies supporting, the focus is on a break of the .8869 level and a return to the .8967 YTD highs, above which the 2022 highs come into view.