The EU received a poor set of numbers from the automotive sector this week after European car registrations fell sharply in June causing more concern at a difficult time for the sector. The combination of the US China trade war, the emissions scandals, a weaker global growth outlook and Brexit are all having a negative impact on the EU manufacturing sector in particular in Germany, the engine room of the European economy. It was reported that BMW made its first loss in a decade and other companies are feeling the squeeze too.
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Germany and France are both feeling the pressure from US President Donald Trump. He has threatened tariffs on European cars whilst trying to bring US agriculture into a trade deal. Germany would be particularly hit by auto trade tariffs whilst the French who have good EU trade protections are against US agricultural imports.
Benoit Coeure who sits on the board of the European Central Bank (ECB) has indicated there is likely to be weaker growth in the second and third quarters for the EU after a modest 0.4% expansion in the first quarter of 2019. He cited weaker trade stemming from global uncertainties which are having a negative impact on the EU manufacturing sector. Any further weakness could push the bloc closer to a potential recession which could prove negative for euro exchange rates.
Monday sees EU Purchasing Managers Index data for both the services and manufacturing sectors, followed by consumer confidence numbers on Tuesday which could make for an interesting start to the week. The European Central Bank meet on Thursday for the latest interest rate decision and we could see euro exchange rate movement as a result.
At their last meeting, the ECB agreed that it should be “ready and prepared” to reintroduce policy stimulus to fend off an economic downturn. Any interest rate increase has been put back for at least a year whilst President Mario Draghi signalled he was ready to provide more stimulus in the coming weeks. The ECB is expected to hold interest rates although any commentary or statements in the subsequent press conference could see the euro come under pressure if the Central Bank deems further asset purchases or similar necessary at this time.
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