Eurozone: 1H’18 activity will be sluggish - Westpac

German industrial production (IP) surprised to the upside this month, but Eurozone IP was more muted and forward looking surveys suggest that 1H’18 activity will be sluggish and so, given downwards revisions to June’s core CPI in the region, there is little pressure on the ECB to act in haste, according to Tim Riddell, Research Analyst at Westpac.

Key Quotes

“Flash PMI, IFO and GfK confidence surveys may have some impact on ECB, but political tensions are likely to resurface (migrant and budget issues are merely on hold) after Europe’s summer and so will temper ECB’s stance.”

“Trump’s NATO-related trip to Europe last week highlighted the Administration’s deep concern over US-EU trade. Trump’s hard stance may have been used to pressure EU to increase NATO contributions, but it also focussed attention on potential trade tariffs, especially the auto-sector.”

“Impeding exports would weigh on already sluggish Eurozone activity and so pressure the lower bounds of EUR/USD’s potential 1.12-1.19 range given the continuing strength of USD.”