The flattering economic data across the European area has resulted in slowdown fears. These fears come amid the United Kingdom battling unyielding inflation in its robust growth battles. As the country continues facing the stubborn inflation rate, last week’s key economic data release raised suspicions across the Euro economies. After announcing the soggy industrial production report, the PMI for the Euro Area Composite fell to 53.3.
The 53.3 decline in May came after a 54.1 in April, resulting from the deepening contraction from 45.8 to 44.6 in the manufacturing industry. Besides, the data indicated that the Services PMI also fell from 56.2 to 55.9. Another update that could have fueled the slowdown suspicions is the climate indicator from German IFO Business, which fell from 93.6 in April to 91.7 in May. The recent fall in the climate indicator marked the first monthly index decline within the past six months.
Meanwhile, economic data experts predicted it would fall further from 91.7 to 88.6 in the coming months. But economic activities across the UK have grown more robust than expected this year. Some factors that promoted economic activity across the region include an elevated savings rate, a strong labor market, and falling energy costs. However, inflation has remained a significant concern despite the current growth in the UK economy.
The headline inflation dropped last week to 8.7% year-on-year in April, which was way more robust than the 8.2% fall experts predicted. On the other hand, the core rate that excludes energy and food costs rose to 6.8%. The rise was above the 6.2% forecasts from economists and the highest since March 1992. The Bank of England is now predicting the four other 25 basis point rate hikes in the UK rate market for a 5.50% terminal rate by the end of 2023.
In the meantime, the debt ceiling concerns and weaker-than-expected data for the Euro area resulted in a retreat from DAX from its 16,375 all-time high to the 15,700 critical support level last week. The DAX retreat came after uptrend support in October and the highs in March & February. Although DAX is above the support level, breaking or retesting recent highs is possible. If the DAX reports a sustained support break at 15,700, investors will likely face a more profound decline toward the year-to-date lows.
Above all, the FTSE pullback at 7526 to the 200-day moving average after the release of the inflation data. Although it retains its position above 7526, FTSE could face a rebound toward the 7800/7900 resistance bracket. Overall, if it faces a sustained 200-day moving average break at 7526, it will likely record a more profound decline towards 7200/7300 year-to-date lows.
