Chart of the Week
The latest eurozone data indicate a weakening economy with PMI readings now at levels reflecting a slight growth contraction. The downturn has not yet led to a rise in the unemployment rate, which remains at a low of 6.6%. That said, we are beginning to see a labour market shift in countries that release timely figures, and especially in Germany.
While economic weakening currently remains modest, signs of a downturn are accumulating and the effects of the energy crisis have probably yet to be fully felt, softened by the support from governments. Despite stubbornly high inflation, further economic weakening could persuade the ECB to pause its rate hike process at the end of 2022 following two further and possibly significant increases (50–75 bps). Such a pause would leave time to assess the impact of the ECB’s action. As things stand, the market is currently pricing in 100 bps of additional rate hikes for the first half of 2023.
* PMI: Purchasing Managers Index. PMIs are confidence indicators which summarize the results of surveys of corporate purchasing managers. A value below 50 indicates negative sentiment.
The opinion expressed above is dated October 14th, 2022 and is subject to change.
See also: https://latribune.lazardfreresgestion.fr/en/bond-markets-carry-makes-a-return/
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