Before anything else, let’s first understand PMIs.
PMI stands for Purchasing Manager Index. Basically, it’s a number which reflects the assessment of business managers on the economic environment. The number is derived from surveys given out to executives, asking them about conditions on employment, production, new orders and inventories.
All you really need to look at is whether a PMI is above or below the 50.0 baseline reading. Figures higher than 50.0 mean that managers in a certain industry are confident about the economy. On the other hand, numbers less than 50.0 mean that the industry is contracting.
Traders pay particular attention to PMIs because they are considered as one of the most accurate leading indicators of economic health. After all, the information that they reflect come from the managers themselves. It’s actually not just traders who examine PMIs. All market participants from the average retail trader to a hedge fund manager to industry analysts and central bankers keep an eye out for these reports.
Tomorrow, Thursday, we’ll be treated to a handful of these PMI reports coming out of the euro zone. Here’s the schedule (in GMT) and their corresponding estimates:
7:00 am French manufacturing PMI (48.5), French services PMI (48.9)
7:30 am German manufacturing PMI (52.2), German services PMI (54.7)
8:00 am Euro zone manufacturing PMI (52.0), Euro zone services PMI (52.7), Euro zone flash composite PMI (52.8)
After three months of weakness, a lot of market participants now expect to see a rebound in the region’s overall PMI readings in July. Germany’s readings are anticipated to reflect the country’s moderate growth. As for France, the forecasts actually already reflect an anticipated improvement in business conditions in the services and manufacturing sectors following sharp declines in June.
However, the recent geopolitical tension involving Russia could prove to be a thorn in the euro’s side tomorrow. The country is a major oil supplier for the European Union and was Germany’s second largest trading partner in 2013. Recent calls for sanctions on Russia following the Malaysian Airlines crash will surely not sit well with purchasing managers and their confidence on the economy.
Paying close attention to these reports will definitely be worthwhile. Better-than-expected readings could help EUR/USD bounce back above 1.3500. On the other hand, disappointing figures may spell a bigger sell-off for the shared currency.
To contact the reporter of the story: Jonathan Millet at firstname.lastname@example.org.