Weekly: Eurozone recovery on track

by: Joost Beaumont , Peter de Bruin

Eurozone: The eurozone composite PMI has risen to above the 50 boom-bust mark for the first time since January 2012, which is in line with our view of a modest economic recovery in the second half of this year. Meanwhile, the ECB’s bank lending survey revealed that that the tightening of lending conditions is slowly diminishing.

US: This week will be one of the busiest weeks of the year in terms of economic events. Incoming data suggest that Wednesday’s Q2 GDP figures will be weak, with growth having slowed to a paltry 0.6%, following a 1.8% gain in output in Q1. In turn, this should prompt the Fed to wait with a tapering of its QE programmes until September. That said, we think that the labour market recovery gained some further momentum in July, and are looking for a 200k gain in nonfarm payrolls. A stronger labour market recovery should help the economy to accelerate again in the second half of the year.

EUR/USD: Last week saw further rises in EUR/USD. This reflected that the better-than-expected eurozone data helped German yields to rise at a faster pace than US yields, while the dollar also came under pressure on the back of a Wall Street Journal article that suggested that the Fed might step up its forward guidance. Still, a recovery in the US in the second half of the year should help the dollar to strengthen again.