Looking at today`s macroeconomic data, it is surprising why the European Central Bank decided not to act at last week`s meeting. The situation is getting worse and there is no indication that it would be better.
The European Central Bank has for a long time downplayed the upcoming economic slowdown. Did it think it would be short-lived and shallow? Meanwhile, the collapse in the economy is still growing and it looks like the eurozone might not get out of it soon. Economic growth may remain very moderate with low inflation. Nevertheless, it can not be ruled out that at the end of the term of office, Super Mario - as the head of the ECB is called - will prepare something special. This may be a concrete broad action in the form of interest rate cuts, the QE program and financing for banks to make up for the lost time.
The Business Climate Indicator (BCI) published today by the European Commission fell in July by 0.29 points to -0.12. The market expected a reading of 0.08. The July level of the index is the lowest since September 2013. The data improved only in the managers' assessment of inventories, and the outlook for production and expectations for future production and exports deteriorated. On the other hand, the Euro area Economic Sentiment Indicator, also published by the European Commission, fell to 102.7 pts in July from 103.3 a month earlier. It was the lowest publication since March 2016.
As if that was not enough, we also got data from the largest euro area economy, that is from Germany today. The GfK Consumer Climate index was 9.7 points, which is the lowest reading since April 2017. The indicator measuring economic expectations fell to -3.7, to the lowest level since November 2015. The main cause of weak data can still be considered global concerns about economic slowdown, trade war and uncertainty related to brexit.
Data releases have not disturbed the stability of the euro because the market is waiting for the Fed's Wednesday decision on interest rates. However, deteriorating data from Europe may not be favorable for the zloty. Polish economy may experience a slowdown from the euro area. The EUR/PLN exchange rate has been steadily rising from 4.24, currently reaching 4.30.
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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