EUR: ECB communication and PMIs shape outlook – TD Securities

TD Securities highlights the ECB Watchers’ Conference as a key platform for policymakers to discuss geopolitical risks and Eurozone monetary policy. The bank expects officials to reiterate that the ECB is ready to act but needs more time to assess risks. Diverging March PMIs in France and Germany show weaker French services and stronger German manufacturing, with rising input costs but limited pass-through to consumers so far.

ECB stance and mixed Eurozone PMIs

"This year's ECB Watchers' Conference will give Lagarde, Lane, Rehn, and Kocher a platform to further expand their views on current geopolitical events and how these may affect euro area monetary policy in the medium term. Although the conflict has evolved since the projections that were presented at the meeting on the 19th, it is anticipated that all members present will echo Lagarde's position: the ECB stands ready to act but believes more observation is necessary to evaluate any risks. The Governing Council is in a stronger situation than in 2022, which allows them extra time to reach an informed decision."

"March business activity across the euro area’s two largest economies diverged: France’s services sector saw a sharper contraction, with the PMI falling to 48.3 (TDS/mkt: 49.0) as demand weakened amid geopolitical uncertainty and pre-election caution, while German manufacturing experienced its strongest production growth in over four years, with the PMI rising to 51.7 (TDS: 49.0; mkt: 49.5) driven by increased orders linked to the Middle East conflict and stockpiling efforts. Both economies faced surging input costs, especially for energy and materials, but firms in neither yet showed signs of pass-through to consumers, temporarily easing monetary policy concerns. Jobs were cut more quickly and replaced more slowly in both countries, and sentiment across firms unsurprisingly saw a pronounced downturn in response to the Iran conflict uncertainty."

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