Eurozone Going Through A Roller Coaster

The Eurozone has been making solid progress lately, in spite of its equity markets looking to show the opposite. With the region’s leading index — the DAX — down 11% before rallying on Tuesday, you’d think someone was pulling the rug out from under the Eurozone. Not so, however. The region’s purchasing managers’ index (PMI) survey for August shows only data for Germany, France and the Eurozone as a whole, but overall it looks good.

“The flash PMI suggests that the eurozone is still experiencing one of its best periods of economic growth and job creation during the past four years,” said Rob Dobson, senior economist at Markit. The figures indicate that the Eurozone is on track to grow 0.4% in the third quarter from the previous quarter. The index itself sits at 54.1, a jump from 53.9 in July. Typically, a reading below 50 shows that activity in the manufacturing and services sector are declining.

Germany led the pack, as usual, with a composite PMI of 54, a rise from July’s figure of 53.7.

Consumer confidence also jumped in August, which is good news for those who noticed the slump in July when consumers fretted over the Greece deal and whether or not the country would exit the Eurozone.

The one area of concern, however, is the region’s second-largest economy — France. In that country, the manufacturing PMI was down to 48.6 in August from 49.6 in July. Data released earlier in the month shows that the country’s economy failed to grow at all during the second quarter of 2015. Unemployment still sits at 10% in the country, refusing to budge downward.

“Output growth in France’s private sector economy cooled to a four-month low in August, suggesting that third-quarter GDP may disappoint again following stagnation in second quarter,” said Markit economist Jack Kennedy.

Will the recent drop hurt?

Despite the good news last week, news from China have had a significantly negative effect on global equity markets, including those in the Eurozone. As mentioned previously, the DAX was down 11% in a matter of four trading days. The FTSE was down 9% during that same period.

But on Tuesday, markets rebounded as China cut its interest rates to battle its own economic demons. The People’s Bank of China made the unscheduled move early Tuesday morning, cutting lending and deposit rates by 0.25%. It also cut the reserve ratio requirement, which should increase liquidity in the ailing economy. While China still faces some downward pressure, it’s making the right decisions and taking strides to maintain liquidity.

European indices hailed the move, with the FTSE up 3% and the DAX up 4%. U.S. equities will likely follow suit, as the market has not yet opened as of this writing. With pressure from China decreasing, it’s likely that Eurozone equities will get back to positive areas and the good news about the region’s economies will take hold again, pushing indices higher than they ever have been before.