5 months ago • 2 mins
What’s going on here?
Data out late last week showed that Europe’s taking a summertime nap, with a dozy downturn in economic activity.
What does this mean?
Every month the folk who manage purchases in manufacturing and services industries tell economists how busy they’ve been – and in June, activity in the eurozone’s manufacturing sector hit a speed bump and shrank. Services activity – which makes up almost three-quarters of the eurozone economy – actually swelled, but even that ultimately fell short of economists’ expectations. So sure, the economy might be on the up overall, but it’s not hitting the high notes that experts thought it would. Europe’s slowdown could be proof that the bloc’s highest interest rates in 20 years are doing what they’re supposed to, cooling things off to help bring down inflation. If so, kudos to the US Federal Reserve, which managed to pull off a similar trick stateside, but with a milder slowdown in June’s activity levels.
Why should I care?
For markets: Euros are out, dollars are in.
If the eurozone economy is hitting the brakes, then the European Central Bank might consider easing off on interest rate hikes. And if those rates don’t keep on climbing, well then, interest on savings in eurozone bank accounts won’t either. That could be why the value of the euro slipped nearly 1% against the US dollar: investors may be attracted to the higher rates on offer in the US, shifting their cash at Europe’s expense. And sure, 1% might not sound like much – but in the delicate world of currencies, that’s a headline-grabber.
The bigger picture: Clues but no cigar.
Surveys like these give investors “soft” data – a sneak peek into an economy’s performance. But that's not a nailed-on account of how the country’s faring, mind you: for that, you need “hard” data – verifiable snapshots of economic growth. Soft and hard data don’t always agree, though, so savvy investors typically don’t bet the farm on the basis of surveys alone.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.
/3 • Your free quarterly content is about to expire. Uncover the biggest trends and opportunities. Subscribe now for 50%. Cancel anytime.