As we approach the end of this week, global economic releases continue to capture the attention of traders, consumers, and investors worldwide.
From Japan to the Eurozone, here are some of this week’s economic indicators and what they mean for the global economy:
What Did the Eurozone’s PMI Reveal?
Flash Business Purchasing Managers Index (PMI) in the Eurozone (EZ) was released today, Thursday, November 23, hence providing valuable information about the state of the Eurozone’s economy.
PMI is an economic index that measures the health of the manufacturing sector and covers current and future business conditions.
It is no secret that this year, the Eurozone, much like numerous other economies, has been experiencing a contraction and teetering on the edge of a recession, and today's PMI figures may further substantiate this trend.
While the composite PMI data for November indicates a slight improvement, edging from 46.5 to 47.1, it still suggests a contraction in business activity with some analysts even stating that it might mean that the EZ is in a “shallow recession.”
Furthermore, signs of deterioration in the Eurozone's employment sector are emerging. The previously robust growth in service sector employment, which played a crucial role in sustaining overall employment levels, has now significantly decelerated. Simultaneously, the manufacturing sector is witnessing a decline in job numbers, contributing to the overall unemployment rate.
Additionally, it is noteworthy that although inflation has moderated in the Eurozone, today’s recent PMI data may highlight the persistence of input cost pressures. Notably, selling price inflation increased in November compared to the previous month, primarily driven by the services sector, even as prices in manufacturing continued to decline.
This, as a result, may suggest that inflationary pressures are far from over, potentially necessitating further intervention to address the prospect of rising inflation.
You can find out more about PMI and its economic influence in our “What Is PMI” article.
Japan’s CPI Preview: How Is the World’s Third-Largest Economy Faring?
The Consumer Price Index (CPI) provides insight into an economy’s inflation or deflation and is often used by Central Banks to determine monetary policy and decide on interest rates. You can read more about how CPI functions and how it affects the economy in our “CPI: All You Need to Know” article.
As such, Japan’s CPI release on Thursday, November 23 at 23:30 GMT (8:30 Friday, in Tokyo, Japan), will be closely monitored by the country’s Central Bank, the Bank of Japan (BoJ), especially as this comes ahead of the latter’s final monetary policy meeting of the year which is scheduled on December 18-19. (Source: Bank of Japan)
Despite last month’s 3% YoY dip in Japan’s core CPI, anticipations for the forthcoming CPI release suggest a possible reversal. Projections indicate that YoY National Core CPI for October is poised to rise to 3%, compared to the preceding 2.8%. But why is this potential reversal important?
What Could a Higher CPI Mean For the BoJ?
As the BoJ is renowned for its ultra-loose (dovish) monetary policy, the projections of a higher CPI carry heightened significance in the upcoming release. Yen traders and consumers alike may be keen on deciphering when, and if, the BoJ will cease keeping interest rates low and how it might affect business conditions.
This is because higher CPI means higher prices, which, in turn, could heighten the likelihood of businesses agreeing on another pay hike in 2024.
Accordingly, if the expected pay hikes materialize, there is an increased likelihood of the BoJ abandoning its dovish stance in 2024 and possibly adopting a more hawkish tone. Traders might be more drawn to the Japanese yen, which has been on a decline since reaching its latest record high on November 13.
Nevertheless, it's crucial to consider that numerous factors could come into play, and nothing is definite at this point. Only time will reveal the path the BoJ will choose this time around.
To sum it up, this week's economic news from the Eurozone and Japan may show the intricacies of the global economic landscape. While inflation is easing in the Eurozone, the latest PMI data suggests that its economy is under pressure and its business sector may be underperforming.
Meanwhile, many expect the BoJ to adopt a hawkish policy instead of its usual ultra-loose approach, which could potentially boost the Japanese yen which has been slumping recently. H
However, these are all projections and nothing is certain when it comes to the volatile markets and the dynamic economy.