Eurozone Manufacturing Sector Contracts in November

Eurozone Manufacturing Sector Contracts in November
December 3, 2019

 

The euro dollar rose sharply against the US dollar yesterday despite the IHS Markit’s PMI (Purchasing Managers Index) data indicating a contraction in the manufacturing sector in November. Notably, the rate of decline slowed from the previous month. The main reason for the greenback’s poor performance was the reports of worse-than-anticipated contraction in the US manufacturing activity.

The Eurozone factory PMI improved to 46.9 in November, from 45.9 in the earlier month. The reported figures were better than the flash estimate of 46.60. However, a reading below 50 indicates economic contraction, which is still a cause of concern. Including this month, the manufacturing sector had contracted for a period of 10 months.

Chris Williamson, a chief business economist at IHS Markit, pointed out that the survey data for 4Q 2019 indicates a contraction of over 1% in manufacturing sector.

Among the top four economies in Europe, France reported manufacturing expansion on m-o-m basis in November. The PMI rose to 51.7, from 50.7 in October. The flash estimate was 51.60. It is the quickest increase in the French manufacturing output in five months.

Despite reporting the best PMI reading the five months, Germany continues to remain at the bottom of the table. The manufacturing industry shrank in November. Nevertheless, the recent decrease in manufacturing output, fresh orders, and employment were worse than in the past few months.

The headline IHS Markit/BME Germany PMI improved to a five-month high of 44.10 in November, from 42.10 in the prior month. The reported figure was slightly higher than the preliminary estimate of 43.80.

Phil Smith, Principal Economist at IHS Markit, opined that an economic rebound is no way near, despite a slight improvement in the manufacturing sector. Smith said, “The manufacturing sector has taken a small step in the right direction with the PMI moving to a five-month high in November, but remains some way even from stabilization, let alone a resumption in growth.”

Similarly, Spain’s PMI increased to 47.50 in November, from 46.80 in October. Paul Smith, Economics Director at IHS Markit, opined that the sector’s performance would affect the 4Q 2019 GDP figures. Smith said: “Whilst the relative improvement in this month’s PMI raises hopes that the worst of the industrial downturn is passing, the sector remains a notable drag on the Spanish economy and is set to weigh on GDP figures for the fourth quarter.”

Italy posted its lowest PMI figure in eight months. The country’s manufacturing PMI fell to 47.60 in November, reflecting the worst business conditions since March 2019. It is also the fourteenth successive contraction of the industry.

Regarding Italy’s manufacturing sector contraction, Amritpal Virdee, Economist at IHS Markit, said: “The latest manufacturing numbers coming out of Italy continue to disappoint, with November’s PMI data showing the downturn deepening.”

In the US, manufacturing activity continued to decline in November amid a drop in inventories and fresh orders, as per the ISM Manufacturing report published yesterday.

The ISM manufacturing activity index recorded 48.1 in November, a decline from 48.3 in the earlier month. Economists had anticipated a reading of 49.4. Fresh orders fell to 47.2, from 49.1 in October. Inventories index stood at 45.5, a decrease of 3.4 points from the earlier month.

Commenting on the US manufacturing activity, Ian Shepherdson, chief economist at Pantheon Macroeconomics, said, “is stuck in a mild recession with little prospect of a real near-term revival. This will weigh on job growth and Capex over the next few months, to the point where we are not ready to rule out a further [Federal Reserve] easing in January.”

As the Eurozone manufacturing activity has exceeded the flash estimate and the US manufacturing activity fared worse than economists’ expectations, we can expect the EUR/USD pair to remain bullish in the short-term.

Technically, the EUR/USD pair is rising after breaking the resistance at 1.1020. The next major resistance is anticipated only near 1.1090. Furthermore, the oscillator of the moving average is ascending in the positive region. The currency pair is also trading above its 50-day moving average. Therefore, we are expecting the currency pair to remain bullish in the short-term.

EUR - technical analysis - 3rd Dec 2019

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Ian Maguire

Ian Maguire

Ian is our resident contributor to the latest going ons in the cryptomarket, keeping up to date with the latest icos and coins


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