Euro Area: PMIs soften as inflation pressures rise – Deutsche Bank

Deutsche Bank analysts report that Euro Area activity is slowing, with the composite PMI dropping to a 10‑month low while still just above the 50 expansion threshold. They emphasize that survey details point to rising input prices, suggesting renewed inflation pressures. Markets responded by increasing the implied probability of an ECB rate hike at the April meeting.

Growth cools while pricing gauges spike

"In the meantime, yesterday also brought the flash PMIs for March, which showed that the global economy was clearly slowing under the impact of the Middle East conflict. For instance, the Euro Area composite PMI was down to a 10-month low of 50.5 (vs. 51.0 expected), and the US composite PMI fell to an 11-month low of 51.4 (vs. 51.9 expected)."

"The only bright spot was that they weren’t even worse, with both still (just about) above the 50 mark that separates expansion from contraction. So that fits with broader market pricing, which isn’t yet at recessionary levels, although we’ve seen a clear step-down from the pre-conflict trajectory. "

"At the same time, the PMIs pointed to rising inflationary pressures, with the euro area composite input price series seeing its sharpest spike since March 2022, while in the US the composite output price series rose to its highest level since September 2022."

"For sovereign bonds, the losses were more consistent on both sides of the Atlantic, as higher oil prices and the PMI releases revived investor fears about higher inflation and potential rate hikes."

"So investors dialled up the probability of an ECB hike at the next meeting in April, taking that back up to an 86% chance."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)