The Eurozone Faces Economic Contraction: Citigroup's Bearish Stance
Citigroup has doubled down on its bearish stance, attributing it to the recent disappointing European economic activity data. The HCOB's preliminary data, compiled by S&P Global, dropped to 48.9 this month from August's 51.0, falling below the 50 mark that separates growth from contraction for the first time since February. The decline was widespread, with Germany seeing a deepening decline and France returning to contraction after the boost from the Olympics in August.
Citi highlighted downside risks to growth in the eurozone, pointing to manufacturing as a drag and potential reversals in one-off boosts to services, such as the Olympics. The bank also noted that while the manufacturing slump is a global issue, the US is more insulated than Europe. With the markets anticipating Fed cuts after the September FOMC meeting, attention may turn to whether the ECB is falling behind the curve if European data continues to weaken while US initial claims remain low.
Additionally, the looming US election adds another layer of uncertainty, with tight polling in swing states potentially leading to a premium on the USD. The next US jobs report is not until October 4th, further adding to the uncertainty.
Citi remains short on EUR/USD in both spot and options, setting a spot reference rate of 1.1112. At 07:35 ET (11:35 GMT), EUR/USD rose 0.1% to 1.1122.
Analysis:
This article discusses Citigroup's bearish stance on the Eurozone economy, citing recent data showing a contraction in business activity. The bank highlighted manufacturing as a drag and potential risks to growth in the region. The analysis also considers the impact of global factors, such as the manufacturing slump, on the US and Europe. Additionally, the upcoming US election and its potential effects on the EUR/USD exchange rate are discussed. Overall, the article suggests that investors should be cautious about the economic outlook for the Eurozone and consider the implications for their investment decisions.