Eurozone PMIs outperform expectations as greater defence spending in Germany feeds through

August's Eurozone PMI data slightly outperformed modest expectations. What particularly stands out is the contrast between the manufacturing sector, which seems to be catching some wind in its sails, and the services sector, where expansion was contained and identical to July.

While the impact of the US-Iran war still shapes the Eurozone's business activity, higher defence spending in Germany seems to be starting to show in the data, with broader tech-related demand also playing some role. We are cautiously optimistic about the outlook, especially since some of the challenges for businesses – like the extreme heat that has been particularly severe in the Eurozone's second-largest economy – are temporary. Stability in the Middle East and a normalisation of energy commodity prices would also help a number of businesses. 

EUR/USD was little changed after the readings, unsurprising given the composite data came in close to expectations. The data likely won't change much in the context of the ECB's upcoming interest rate decision. The Eurozone economy isn't firing on all cylinders, but growth above 1% suggests it's resilient enough that some further monetary policy tightening remains firmly on the table.