The economic situation in the euro area seems to continuously deteriorating, which is indicated by subsequent published macroeconomic data. The current picture of the economy is much worse than it was imagined by the European Central Bank and its president – Mario Draghi just a few months ago.
Both the slowdown in the economy and low inflation last much longer than previously expected by the European Central Bank, hoping that it is right to end the asset purchase program and announcing the possibility of interest rate hikes. In recent comments, Mario Draghi has made a u-turn suggesting that additional stimulus may be needed if the economic situation does not improve and the market has started to price the possibility of cutting interest rates this year.
Another publication of data from Europe shows that this direction may be right, and the earlier downplaying of negative signals coming from the economy was not necessary and what to say – it was a mistake. Eurozone Economic Sentiment fell to 103.3 points in June from 105.2 in the previous month. The market expected publication at the level of 104.6 points. This was the lowest reading since August 2016. Producer moods fell by 2.7 points to -5.6, which is the biggest drop in around eight years. In addition, confidence has deteriorated among service and consumer service providers. The largest declines in confidence were recorded in Germany and Italy, followed by France, the Netherlands and Spain, according to data published today by the European Commission.
Another indicator published by the European Commission today is BCI (Business Climate Indicator) - an indicator of business sentiment in the euro area. Today's data show the continuation of the decline which began in 2018. The business climate index fell to 0.17 in June from 0.30 in the previous month and below market expectations at 0.23. It was the lowest reading since October 2014.
However, the market has already ceased to worry about worse publications, because the worse the data, the greater the chances for monetary policy easing by the European Central Bank and greater chances for cheap money, which is very beneficial for investors and the financial sector. Currently, the interest rate market assumes that the ECB will decide to cut interest rates this year, and perhaps this fall.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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