Euro area: Services PMI and inflation risks – BNY
Geoff Yu at BNY argues that the lack of further Fed tightening has eased global financial conditions and partially offset European Central Bank (ECB) tightening, but European inflation dynamics remain distinct from the U.S.
BNY's Geoff Yu suggests that the Federal Reserve's decision not to implement further interest rate hikes has led to more relaxed global financial conditions in the Euro area. This easing has partly offset the ECB's tightening measures. However, European inflation dynamics differ from those in the U.S., where an investment-driven demand growth is more prominent.
The services Purchasing Managers' Index (PMI) figures present a concerning picture. Although softer headline prices have contributed to the sector's recovery, the disparity between input and charged prices remains wide. This divergence indicates significant margin pressures across the services industry, even as the Middle East ceasefire took effect.
Moreover, the Eurozone's inflation situation is inherently different from the U.S. case, where demand growth plays a more substantial role. Despite some relief from falling prices for dollar-priced commodities, the outlook for Euro area currencies could worsen further, particularly for those with the highest real interest rates in emerging markets.
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