Euro area headline economic sentiment falls marginally in July, growth likely to stay unchanged in Q2

The European Commission survey showed that the economic sentiment in the euro area was little changed this month, albeit the small fall in the headline index from 112.3 to 112.1 left at the lowest level in nearly a year and 0.4 point lower compared to its average in the second quarter. This tallies with other major euro area surveys seen recently – for instance, last PMIs indicated the composite PMI index widely remained the same from the past couple of months, but slightly lower than its second quarter average, noted Daiwa Capital Market Research in a report.

In the major Commission survey’s components, sentiment in industry was weaker, extending the downward trend since around the turn of the year, while retail confidence was also down. This was partially countered by a rebound in the services to a four-month high. Moreover, the flash reading of the consumer confidence index, while implied an unchanged reading from June of -0.6 was confirmed.

Delving into details, the index for new export orders in manufacturing weakened to its lowest level in nearly one year, leaving total order books also weaker, leaving total order books also weaker. In line with that, employment expectations in the sector also eased, raising concerns about how momentum in this sector will evolve in the months ahead, stated Daiwa Capital Market Research.

In terms of price expectations, the picture was generally consistent throughout different business sectors, suggesting no notable intensification of underlying price pressures – not particularly good news for the ECB. However, a similar indicator from the consumer survey did rise and reach its highest level in half a year.

“Overall, the survey implies that compared to last year the euro area economy has generally settled at a slower-growth path. We think that Q2 GDP data will show an unchanged pace from Q1, and this quarter is shaping up for something similar”, added Daiwa Capital Market Research.

At 20:00 GMT the FxWirePro's Hourly Strength Index of Euro was neutral at 14.4303, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 58.2515. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex