LGT Navigator

Gloomy outlook for eurozone economy

The Purchasing Managers' Index for the eurozone deteriorated unexpectedly sharply in July. This puts the European Central Bank in a difficult position. In the US, quarterly earnings from heavyweights Microsoft and Alphabet will be in focus today. 

Tina Haldner
Temps de lecture
5 minutes
© shutterstock

Wall Street kicked off a busy week on a positive note. The S&P 500 was up 0.4% at 4554.64. The Dow Jones continued its winning streak for the eleventh day in a row, rising 0.5% to 35’411.24. The Nasdaq Composite recovered some of its recent losses, gaining 0.2% to 14’058.87. Investors will be looking ahead to earnings from US tech giants Microsoft and Alphabet, which are due to release their quarterly reports after closing today. Market participants will also be watching the Federal Reserve's next decision, which is scheduled for Wednesday. The Fed is almost certain to raise interest rates by another 25 basis points.

In Asia, the Hong Kong stock market stood out on Tuesday, with the Hang Seng Index rising more than 3% after Chinese authorities pledged to support the struggling property sector. The Shanghai Composite is up around 1.2%. In Japan, the Nikkei is down 0.3%.

Business climate in the euro area deteriorated more sharply than expected in July. The PMI fell by 1.0 point month-on-month to 48.9 points, financial services provider S&P Global said on Monday. This is a first estimate of the composite indicator, which includes both industry and services. The index fell to its lowest level in eight months, with a reading below 50 signalling that economic activity is contracting. On average, analysts had forecast a slight decline to 49.6 points. 

The situation is even worse in the industrial sector. The sub-index fell by 0.7 points to 42.7, its lowest level in more than three years. Weak external demand is weighing on the sector. Sentiment in the services sector has also deteriorated and is now at its lowest level for six months. The gloomy business outlook and weak new orders suggest that the European economy's slide could accelerate in the coming months, S&P Global experts said.

The economic slump puts the European Central Bank in an uncomfortable position. With inflation in the euro area still well above the central bank's target, it is almost certain to raise interest rates again on Thursday. However, rising rates risk choking off the economy even further.

British business managers are also more pessimistic about the future than they were a month ago. The Purchasing Managers' Index for the UK fell 2.1 points from June to 50.7. This is the lowest reading since January. Economists had expected the index to fall to 52.3. The picture is particularly bleak for the British industry: at 45.0 points, the barometer is well below the growth threshold of 50. 

Corporate news in focus:  Kühne + Nagel, Lindt&Sprüngli, Logitech, LVMH, SIG Combibloc, UniCredit, Alphabet, Biogen, Microsoft, Unilever, Verizon and Visa with Q2 earnings.

Economic data in focus: Ifo Business Climate Index Germany (10:00 CET), S&P/Case-Shiller Home Price Index US (15:00 CET), US Consumer Sentiment (16:00 CET).

LGT helps you make informed investment decisions

All about global economic and market trends at a glance

You can also follow us on Facebook or LinkedIn – or visit Insights and discover interesting background articles. If you have questions, a consultant from the bank will be happy to help you.

Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

Prendre contact