Euro zone business growth slows again in July, caused by continuous trade war fears with the US

Jul 25 • Morning Roll Call • 991 Views • Comments Off on Euro zone business growth slows again in July, caused by continuous trade war fears with the US

On Tuesday the Euro zone flash services PMI showed that the new order inflows and reduced business expectation of future activity are signaling a lost momentum at the beginning of the 3rd quarter. The reading came at 54.4 as opposed to the forecasted 55.0, down from 54.9 in the previous month. However, according to Reuters, the fall in the euro zone PMI in July comes as a disappointment, however the index remains consistent with a decent pace of GDP growth and it is unlikely to prevent the European Central Bank from normalizing policy with an expected gradual process.

Regarding the manufacturing PMI readings from the euro zone, Germany and France, we have witnessed positive results, where the manufacturers had a better month of July than was expected. From the euro zone, factory PMI rose to 55.1 from 54.9, beating the expectation of 54.7. The German manufacturing PMI came at three month high with 57.3, while the economists have forecasted 55.5. As a note, anything above 5.0 on the index indicates an industry expansion. In France, the manufacturing PMI came at two month high with reading of 53.1, as opposed to the expected 52.6. According to an economist at survey compiler Markit, Alex Gill, the French private sector showed a continuation of growth at a decent pace in the 3rd quarter, however the rate of expansion remains weaker than seen around the turn of the year, but the business confidence and job creation are still strong, which is suggesting that a solid near-term growth can be expected.

A survey complier HIS Markit, Chris Williamson said that it is evident that in July more companies are reporting a worry regarding the global economic growth affected by the increasing fear of a trade war escalation. On this note, German Foreign Minister Heiko Maas has stated on Tuesday that Europe will not bow to threats coming from the US and is looking to resolve the trade dispute via negotiations. As an attempt to ease the tension, Commission President, Mr. Jean-Claude Juncker is scheduled to hold a meeting with the United States President in order to discuss the steel and aluminum tariffs and discuss the threats of President Trump towards imposing tariffs to European card. The EU representatives are keeping their hope to resolve the issues via a consensus.

While Europe is hoping to reach a consensus, that cannot be said for President Trump, who has tweeted yesterday that whichever country has treated the Unites States unfairly on Trade will need to negotiate a fair deal or will be hit with tariffs. He has also proclaimed that ‘tariffs are the greatest’ and that the US has been treated as a ‘piggy bank’ that has been robbed. Stating this, it is yet to be seen how the meeting with Jean-Claude Juncker in Washington will proceed.

ECONOMIC CALENDAR EVENTS FOR JULY 25th

NZD Trade Balance
AUD CPI q/q
AUD Trimmed Mean CPI q/q
EUR German Ifo Business Climate
EUR M3 Money Supply y/y
USD New Home Sales

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