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Risks to EMU August PMI consensus expectation of 53.4 skewed to the downside - ING

FXStreet (Łódź) - Martin Van Vilet from ING suggests that Eurozone August PMI, due out on Thursday, should drop somewhat from the come above the 50 growth/contraction level.

Key quotes

"The August 'flash' Eurozone PMI figures, due tomorrow at 10:00am CET, should shed more light on how the Eurozone economy is holding up in the face of the persistent geopolitical tensions and the counter-sanctions imposed by Russia."

"Last month, the composite index unexpectedly improved to a near three-year high of 53.8 on the back of a strong performance of the services component."

"We doubt, however, whether this can be sustained in August. Timely indicators such as the German ZEW index and the Sentix sentiment indicator dropped sharply in August."

"Moreover, our favourite leading indicator of Eurozone activity, narrow money supply growth points to a weaker PMI as well (see left-hand chart)."

"In our view, the risks to the consensus expectation of a 53.4 reading are skewed to the downside."

"Although we expect the PMI to remain well above the 50 growth/contraction threshold, it is worth highlighting that Eurozone GDP growth in the first half of this year was much weaker than had been implied by the PMI data, which has cast some doubt about the PMI’s reliability as an indicator of output trends."

"Nevertheless, we think it is too early to presume that the relationship between the PMI and real GDP growth has changed."

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