PMIs Plunge To Record Lows

The true damage to the health of the eurozone economy, caused by COVID-19, has become clearer still this week in light of the latest data. The composite PMI (Purchasing managers’ index) printed a ready of just 13.5 in April, plunging to new all-time lows from the prior record set in March of 29.7.

These latest readings have been well below the worst readings of the global financial crisis which fell to 36.2 at the worst of the economic crisis. The continued plunge over April was mainly fuelled by the drop in the services sector which fell to 11.7, a new record low, from the prior month’s 26.4 reading.

Commenting on this latest decline in survey data, Chris Williams (chief business economist at IHS Markit) said: “The ferocity of the slump has also surpassed that thought imaginable by most economists, the headline index is falling far below consensus estimates. Our model which compares the PMI with GDP suggests that the April survey is indicative of the eurozone economy contracting at a quarterly pace of approximately 7.5%.”

This latest data release compounds the negative sentiment towards the eurozone which has been building with each data release. Germany, particularly, has seen a devastating drop in key data prints. The latest industrial data sets released yesterday, adding further concern. Following the 5.6% quarter on quarter contraction in retail sales, new orders dropped 15.6% quarter on quarter through March. On the year now, new orders are down 16%. The most worrying element is that this drop is not just caused by domestic lock-down measures but also by the measures in place around the globe which are decimating global supply chains.

Euro-zone Forecasts Deteriorate

The Spring 2020 Euro-zone Economic Forecasts released yesterday paint a very bleak vision of the future. The European Commission note that the eurozone economy is forecast to fall by a record 7.75% over 2020 followed by growth of 6.5% in 2020. These projections are now around 9% lower than the forecasts made during the Autumn 2019 economic forecasts. The European Commission also warned that a prolonged pandemic (such as a second outbreak) or a delayed recovery (sower than projected) could see an even worse hit to GDP over this time frame.

Technical Views

EURJPY (Bearish below 115.96)

From a technical viewpoint. EURJPY has reversed lower from recent highs, failing at the monthly pivot and has now broken down below the 115.96 support and is challenging the 2017 lows at 114.86. If price sustains below here the 113.72 late 2016 lows will be on radar, in line with VWAP which is still negative, suggesting further losses are likely.

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