German Ifo Business Climate Index Sends Mixed Signals

It is a relatively busy morning on the European economic calendar. The German Ifo Business Climate Index was in focus this morning.

The Current Assessment Index fell from 95.4 to 95.0 in April, while sentiment towards the outlook improved, with the Business Expectations Index rising from 91.0 to 92.2. Economists forecast increases to 96,0 and 91.5, respectively.

As a result, the German Ifo Business Climate Index increased from 93.2 to 93.6 in April versus a forecasted 94.0.

According to the April survey,

• Firms were more optimistic across the manufacturing sector while their view of the current business worsened.
• In contrast, service providers became more pessimistic about the months ahead and took a more negative view of their current situation.
• In trade, businesses were less satisfied with their current situation but were less pessimistic about the near-term outlook.
• The Construction Business Climate Index increased in April, supported by a pickup in the Expectations Index. However, construction companies were also less satisfied with their current situation. The Assessment of the current situation was at its lowest since December 2015.

Following the flash German private sector PMIs, investors may have expected a fall in business confidence. While the German manufacturing PMI fell to a 35-month low of 44.0, the services PMI hit a 12-month high of 55.7. Significantly, input and output price pressures softened, while business expectations weakened for the second consecutive month.

EUR/USD Reaction to the German Ifo Business Climate Index

Before the Business Climate Index release, the EUR/USD rose to an early high of $1.09962 before falling to a pre-stat low of $1.09660.

However, in response to the Ifo numbers, the EUR/USD rose to a post-stat high of $1.09944 before falling to a low of 1.09839.

This morning, the EUR/USD was flat at $1.09894.

Next Up

With the German economy in the spotlight, investors should monitor ECB commentary. ECB Executive Board member Panetta is on the calendar to deliver speeches today.

Comments relating to the euro area CPI report and ECB monetary policy will move the dial.

Looking ahead to the US session, it is a quiet day on the US economic calendar. The Chicago Fed National Activity Index and Dallas Fed Manufacturing Index numbers will draw attention. With no other stats to consider, we expect increased market sensitivity to the Index numbers following last week’s mixed signals.

After the better-than-expected PMI numbers, investors are expecting a more hawkish Fed outlook. However, there are no FOMC member speeches to consider. The Fed entered the blackout period on Saturday.