Germany's final June factory PMI was revised to 50.3, topping the 50.0 flash estimate. The sector eked out modest growth while input cost inflation retreated. The data leaves the ECB's rate path uncertain.
Alpha Score of 40 reflects weak overall profile with poor momentum, moderate value, moderate quality. Based on 3 of 4 signals – score is capped at 90 until remaining data ingests.
Germany's manufacturing sector ended the second quarter on a slightly firmer note than first reported. The S&P Global manufacturing PMI was revised to 50.3 for June, up from the preliminary 50.0 reading. The index sits just above the 50 mark that separates expansion from contraction.
Phil Smith, economics associate director at S&P Global Market Intelligence, described the release as "a slightly more positive set of results for the German manufacturing sector in June than we saw the month before." He pointed to improvements in growth indicators and underlying price and supply metrics.
Output rose modestly during the month. Smith cautioned that firms were still partly relying on backlogged orders to support output, a dynamic he called "not sustainable in the long run." New orders returned to growth in June, though only marginally. Smith flagged the risk of payback from the front-loading of orders seen in recent months, which, along with high price levels and elevated uncertainty, is likely to weigh on near-term growth.
The clear positive in the release was a retreat in input cost inflation. "Encouragingly, we saw the rate of input cost inflation retreat from May's near four-year high as the drop in oil prices started to filter through," Smith said. He noted that the direction of price pressures in coming months will depend heavily on developments in the Middle East and that some lagging inflationary pressures will remain in the system regardless.
For the European Central Bank, the data offers no clear directional signal. The slight improvement in activity reduces the urgency for further rate cuts. The easing of cost pressures gives the doves argument that inflation is cooling. The ECB cut rates by 25 basis points in June, and markets are pricing roughly one more cut this year. The PMI revision does not clearly shift that calculus.
The euro barely moved on the release. EUR/USD traded near $1.0730, a level the pair has held for most of the week. Traders were waiting for clearer cues from the ECB's July meeting and US payrolls data due Friday. The EUR/USD profile shows the pair has been trapped in a roughly 200-pip range since mid-June. For a broader view of euro trading, see the forex market analysis page.
Germany's manufacturing sector has been the euro zone's weak link for two years. The June PMI, while above the flash estimate, remains consistent with a sector that is barely growing. Smith said the direction of price pressures in coming months will depend heavily on developments in the Middle East. Some lagging inflationary pressures will remain in the system regardless, he added.
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