Oil price and composite PMI in Eurozone

On the radar

• Unemployment rate in Poland declined to 5.9% in May.
• Today, Hungary will release unemployment rate at 8.30 AM CET.
• AT noon CET Serbia will publish real wage growth.

Economic developments

Correlation does not imply causation. However, plotting the oil price against the Eurozone Composite PMI Index provides an interesting perspective. When the war in Iran started and the Strait of Hormuz was closed, oil and other commodity prices spiked. At the same time, the Eurozone Composite PMI Index declined, reflecting growing pessimism about economic prospects.

With the ceasefire and stabilization in the Middle East, the Brent oil price has recently declined toward USD 74 per barrel, moving closer to pre-war levels of around USD 70 per barrel. We should therefore not be surprised to see the Eurozone Composite PMI Index rising in June. The flash release suggests that the indicator gained 1 point compared with the previous month, bringing the flash Composite PMI Index to 49.5 in June, close to the threshold separating economic growth from recession. While the services sector remains in contraction territory, the Manufacturing PMI Index has been above the threshold of 50, suggesting ongoing expansion.

All in all, the resolution of the Middle East conflict is growth-positive news for the region.

Market movements

CEE currencies keep weakening this week driven by the EURUSD developments. EURHUF is at 355 while EURPLN close to 4.28. In Hungary, Governor Varga was quite explicit saying he sees room for two more rate cuts by 25 basis point each over the summer and before the September’s assessment. As for other news, Romania’s Social Democrats will propose Grindeanu as a potential candidate for Prime Minister position. Poland sold series of bonds wort over PLN 12 billion during regular auctions on Wednesday and followed with top up auction as well. Long-term yields keep declining throughout a week in the region.

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