Finally Some Good Euro News

Finally Some Good Euro News

Strong data is needed to rally the euro and lots of it

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We may finally be getting a little rebound in the Eurozone. Apart from Germany, much of the data coming out of the EU has been soft and getting softer. The euro has reflected this reality losing over 7% of its value in 2018. Friday morning, however, gauge measuring private-sector activity unexpectedly increased for June. The euro area’s composite purchasing managers’ index climbed to 54.8 from 54.1 in May, according to IHS Markit. The median estimate was for a drop to 53.9. Most of the gain was led by services and manufacturing continue to look weak, but the euro rose back above 1.1600 and was up .26% as of this writing. 

Data Is Not Enough

But the stronger data shows up in the middle of a tariff battle between the U.S. and basically everyone.  The “we-tariff, you-tariff, we-all-tariff” game that is going on is a pending drag on economic growth that cannot be dismissed or even calculated at this point.  European Union tariffs levied as retaliation for steel an aluminum tariffs imposed by the U.S. took effect last week. The EU targeted $3.2 billion in American goods exported to the 28-member bloc. Subsequently, President Trump tweeted out the threat of a 20% tariff on all U.S. imports of European Union-assembled cars.  Daimler AG already announced that profit will suffer as a result of the initial tariffs.  Central bankers at the Sintra conference called out protectionism as a threat to their outlooks and ECB President Mario Draghi issued warnings last week about the same.

Despite all this, ECB officials decided that it’s time to unwind QE and the Fed raised interest rates for the second time this year. If there is any movement in ECB rates and any strengthening of the euro vs the dollar, it will only be with fewer trade tensions and better data like we saw on Friday. And we will need a lot of it. 

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