MNI 5 THINGS: EA Flash PMIs Set To Provide Q2 Insight

--EMU Apr Flash Services, Manufacturing PMI Data Due For Release Mon

By Jai Lakhani and Jamie Satchithanantham

     LONDON (MNI) - A first glimpse into how euro area economic activity fared

at the start of the second quarter of 2018 will be published Monday, when the

euro area IHS Markit Flash Estimate PMIs are released. With activity losing some

momentum over the first three months of the year, the preliminary figures will

highlight whether this form extended into April.

     Ahead of the release, we outline five themes for particular attention.

     1) Analysts' Track Record. The track record for Eurozone services and

manufacturing PMI shows analysts over the last two years have tended to

over-estimate manufacturing PMI very slightly.

     The EU manufacturing PMI since March 2016 has been missed by analysts

fifteen times and the misses through under-estimating are significantly more

frequent than the over-estimates. The average of the under-estimates since March

2016 is at 0.14. This is slightly more than the average over-estimate of 0.12.

     The EU services PMI since March 2016 tells a slightly different story. The

EU services PMI since March 2016 has been missed by analysts twenty-three out of

twenty-five times and has been on average over-estimated, albeit at a miniscule

0.01. It is worth noting however that there have been some fairly significant

over-estimates with a 0.9 over-estimate in March and 0.7 in October. The average

of the over-estimates however is the same as the average of the under-estimates

at 0.3.

     Given this, it is likely that services PMI may not be classified as

historically being over or under-estimated by analysts with a fairly equal split

between the two.

     2) March Recap. 

     The euro area March final composite was revised down 0.1pp slightly from

the flash estimate to 55.2, down for the second consecutive month to a 14-month

low. The 1.9 decline from February was driven by losses in both the

manufacturing index (down 3.7 points to 55.9) and services index (down 1.3

points to 54.9). Shown in the table below, the composite indices across all of

the 'big four' except France moderated across the month.

     Table 1: Headline Euro Area Composite PMI

PMI Composite Index  January 2018  February 2018  March 2018

------------------------------------------------------------

Euro Area                    57.1           55.3        55.2

Germany                      57.6           55.4        55.1

France                       57.3           56.2        56.3

Italy                        59.0           56.0        53.5

Spain                        56.7           57.1        55.8

     3) German investor confidence tanks. 

     The April print of the German ZEW index, measuring investor sentiment in

the Euro area's hub, dropped to its lowest level since November, falling from

5.1 to -8.2 - markedly below the market consensus -1.0. This suggests current

sentiment among German businesses, particularly those export-facing, is fragile

amid the ramped-up uncertainty permeating from the US/China trade tensions, even

despite recent efforts from both sides to diffuse the situation. Confidence

across EA19 services and industry firms, reported by the European Commission,

also shows optimism trending lower.

     4) Fade of temporary factors could boost Q2 growth. 

     Ahead of the ECB's meet on Thursday, observers will be keeping an eye out

on any data that will provide an update on the economic health of the euro area

- particularly after growth seemed to have come off the boil somewhat in Q1

after a strong 2017. The tempered data so far this year have been amplified by

methodological changes to official data, weather and calendar effects - all

temporary factors which tend to wash out in a month or two. So, as we move away

from Easter and as the weather starts to improve the PMIs will be a leading

indicator of any potential Q2 activity bounce.

     5) Underlying strength in car sector despite disappointing March. 

     The 5.3% y/y fall in new car registrations, the first March drop since

2014, was driven by i) a high base from a record March in 2017, ii) extreme

weather conditions and iii) a particularly poor performance from the UK (-15.7%

y/y). Looking at underlying growth, EU registrations were up 0.7% q/q, with

strength in Spain (10.5% q/q), Germany (4.0% q/q) and France (2.2% q/q). New car

demand in March, the best gauge of current appetites, was a mixed bag - down in

Germany (-3.4% y/y) and Italy (-5.8% y/y) but up in France (2.2% y/y) and Spain

(2.1% y/y) - but again will have been distorted by the same temporary factors.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

[TOPICS: MAXPR$,M$X$$$,M$XDS$]