France February PMI: Economic Slide Deepens, Services Sector Drags on Overall Performance

Data Interpretation

Summary:

Data released on February 21 revealed that France's Composite PMI fell to 44.5 in February, marking a 17-month low. The Manufacturing PMI rose to 45.5, a nine-month high, while the Services PMI declined to 44.5, also a 17-month low. The private sector economy in France contracted further in February, with the pace of business activity contraction accelerating to its fastest since September of the previous year.

On February 21, S&P Global released the February HCOB PMI report for France:

HCOB Flash France Manufacturing PMI at 45.5 (Jan: 45.0). 9-month high.

HCOB Flash France Composite PMI Output Index at 44.5 (Jan: 47.6). 17-month low.

HCOB Flash France Services PMI Business Activity Index at 44.5 (Jan: 48.2). 17-month low.

HCOB Flash France Manufacturing PMI Output Index at 44.6 (Jan: 44.3). 7-month high.

According to the 'flash' HCOB PMI survey, February's fall was sharp and the steepest since September 2023 as the drag from the private service sector intensified. The headline HCOB Flash France Composite PMI Output Index fell deeper into sub-50.0 territory during February, indicating a sharper rate of decline in business activity across the Eurozone's second-largest economy.

Private sector new orders decreased by one of the most marked extents in around five years. Survey respondents in both sectors frequently cited lower client demand in February, despite a fractional uptick in the HCOB New Export Business Index. French companies cut back on inventories and reduced capacity utilization due to weak demand. Backlogged orders were reduced sharply and at the swiftest pace in 15 months.

In terms of the labor market, the decline in staffing numbers was the steepest since August 2020. The non-renewal of temporary contracts and non-replacement of voluntary leavers were methods used by firms to lower headcounts, anecdotal evidence revealed.

In terms of cost, French businesses were challenged by intensified cost pressures in February. Input prices increased at the strongest rate since last August, primarily driven by the rising prices of raw materials and energy. However, a more competitive market prevented businesses from fully passing on cost increases. Prices charged for French goods and services rose only fractionally on the month.

In terms of the outlook, French companies were broadly neutral as expectations of lower manufacturing production were accompanied by a subdued level of optimism across services. Challenging sales conditions, a lack of confidence in pricing power and concerns regarding the health of the underlying economy were cited as reasons to be downbeat towards the year ahead. Despite signs of stabilization in the manufacturing sector, the persistent under-performance of the services sector is likely to act as a drag on the broader economic recovery.

Overall, the French economy slipped deeper into contraction midway through the first quarter, with the services sector showing particular weakness. In the coming months, businesses are expected to closely monitor government policies, market demand, and the global economic environment to assess the likelihood of an economic recovery.

France February PMI

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Data Interpretation

The S&P PMI data released on February 21 indicates:

The preliminary S&P Manufacturing PMI for Japan in February stood at 48.9, up from 48.7, remaining in contraction range.

The preliminary S&P Services PMI for Japan in February stood at 53.1, up from 53.0, reaching a five-month high.

The preliminary S&P Composite PMI for Japan in February stood at 51.6, up from 51.1, reaching a five-month high.

The latest PMI report indicates that Japan's Composite PMI Output Index rose to 51.6 in February, up from 51.1 in January, signaling an eighth consecutive month of private sector expansion, reaching a five-month high. Economic growth was primarily driven by the services sector, while manufacturing sector remained subdued.

In the services sector, the Business Activity Index increased to 53.1, marking the fourth consecutive month of expansion for the sector, with the fastest growth rate since September of the previous year. Companies generally attributed the growth to business expansion initiatives and improved demand. Despite a slight slowdown in new business growth, overall demand remained robust. Corporate hiring increased for the seventeenth consecutive month, aiding in the management of outstanding orders. However, due to labor shortages and cost pressures, service sector companies' confidence in the next 12 months fell to its lowest level since January 2021.

In the manufacturing sector, the manufacturing PMI saw a marginal increase from 48.7 to 48.9, yet it remains in contraction range. While the declines in output and new orders have moderated, the industry continues to experience a downturn. Manufacturing employment contracted for the first time since November of the previous year, attributed to weak market demand. Corporate procurement activities decreased, leading to further inventory drawdowns. Furthermore, confidence regarding future prospects has plummeted to its lowest point since June 2020, signaling a cautious outlook among manufacturers.

Regarding the labor market, there is a noted labor shortage. The rate of employment growth within Japan's private sector has decelerated, reaching its lowest level in over a year. Although the service sector continues to expand and increase hiring, the job losses in manufacturing have partially offset these gains.

Concerning inflation, the rate of input cost inflation has largely remained at the elevated levels observed in January. Businesses have reported persistent high costs for raw materials, transportation, and labor. Despite these rising input costs, the increase in companies' selling prices has slowed, reflecting the dampening effect of market demand on price transmission.

Looking ahead, Japanese corporate sentiment deteriorated further in February, reaching its lowest point since 2021. Persistent inflationary pressures, labor shortages, and global economic uncertainty continue to challenge the business outlook. While the service sector remains a pillar of economic growth, the sustained weakness in manufacturing could impede the overall recovery.

Overall, the Japan's February PMI indicates a slight acceleration in economic expansion, but manufacturing remains subdued, and business confidence has declined significantly. In the coming months, the market will be closely monitoring government policies, shifts in global demand, and inflationary trends to assess the sustainability of the economic recovery.

Japan's February PMI

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Glendon

Economic

Forex

The EUR/USD pair is hovering around 1.0503, extending its rally since midweek. The major currency pair has climbed to a two-month high, with market sentiment favouring further gains.

Key drivers behind EUR/USD’s rise

A decline in US Treasury bond yields has weighed on the US dollar, following a series of weaker-than-expected US economic reports and dovish remarks from Federal Reserve officials.

Austan Goolsbee, President of the Federal Reserve Bank of Chicago, stated that he does not expect the Core Personal Consumption Expenditures (PCE) index to be as concerning as the recent Consumer Price Index (CPI) data. As a key inflation measure for the Federal Reserve, the Core PCE significantly influences monetary policy expectations.

Meanwhile, St. Louis Fed President Alberto Musalem warned of stagflation risks and the potential challenges in setting future policy.

The latest US jobless claims data further raised concerns, showing an increase to 219,000 from the previous 213,000, exceeding the forecast of 214,000.

In the eurozone, the euro could see further upside if the German election outcome triggers additional short-covering in EUR/USD.

Technical analysis of EUR/USD

On the H4 chart, EUR/USD has completed a growth wave to 1.0470, forming a consolidation range around this level. The market has since broken higher, paving the way for further gains towards 1.0544. A correction towards 1.0385 may follow after reaching this level. The MACD indicator supports this scenario, with its signal line above zero and pointing upwards, indicating continued bullish momentum.

On the H1 chart, the pair executed a growth wave to 1.0470, followed by a narrow consolidation range around this level. The likelihood of an upward breakout towards 1.0520 remains high. After reaching this level, a correction to 1.0470 could occur before the growth wave resumes towards 1.0544. The Stochastic oscillator confirms this outlook, with its signal line above 80 and trending towards 20, suggesting a possible pullback before further gains.

Conclusion

EUR/USD remains in an uptrend, supported by weakening US Treasury yields and a cautious Fed outlook. If bullish momentum continues, the pair may extend gains towards 1.0544. However, a corrective move could follow before further upside. The outcome of the German election could also influence short-term price action, potentially driving additional volatility.

Source: ACTIONFOREX

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Owen Li

Economic

Forex

GBP/JPY rises to around 190.70 in Friday’s early European session, adding 0.60% on the day.

UK Retail Sales climbed 1.7% MoM in January, stronger than expected.

Japan’s hotter CPI inflation print reaffirms BoJ rate hike bets, which might cap the downside for the JPY.

The GBP/JPY cross rises to around 190.70 during the early European trading hours on Friday. The Pound Sterling (GBP) strengthens against the Japanese Yen (JPY) after the release of UK January Retail Sales data.

Data released by the Office for National Statistics on Friday showed that UK Retail Sales climbed 1.7% MoM in January versus a fall of 0.3% in December. This figure came in above the market consensus of a rise of 0.3%. On an annual basis, Retail Sales increased 1.0% in January, compared to a rise of 2.8% (revised from 3.5%) prior, better than the estimation of 0.6%. The GBP remains firm in an immediate reaction to the upbeat UK Retail Sales.

Japan's Finance Minister, Katsunobu Kato said early Friday that higher long-term rates can pressure Japan's fiscal situation. These remarks exert some selling pressure on the JPY and act as a tailwind for GBP/JPY. However, the hotter-than-expected Japan’s National Consumer Price Index (CPI) inflation data reinforced the case for a hawkish outlook on the Bank of Japan (BoJ) monetary policy, which might help limit the JPY’s losses.

Source: FXSTREET

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Warren Takunda

Economic

The Pound-to-Euro exchange rate (GBPEUR) jumped to 1.2080 after the ONS said retail sales rose 1.7% month-on-month in January, breezing past expectations for a print of 0.3% and recovering from December's dismal -0.6%.

The Pound-to-Dollar exchange rate rallied to a new two-month high at 1.2678 after markets pared back bets for a Bank of England rate cut in March.

Retail sales growth now stands at 1.0% year-on-year, better than the 0.6% markets anticipated.

"Retail sales data for January provided some good news, showing some decent growth - well above expectations. The economy is proving to be a conundrum for policy makers at the moment. There is no doubt it could do with some stimulus, but inflation is a concern, and this data suggests the consumer is in a healthy state whilst confidence levels show the opposite," says Neil Birrell, Chief Investment Officer at Premier Miton Investors.

Pound Sterling Rallies Against Euro and Dollar on Retail Sales, Borrowing Surprises_1

However, the Pound's upside potential will be curbed by the details in the report, with Charlie Huggins, an analyst at Wealth Club, saying they are not as good as they first appear.

He explains the recovery was largely due to a significant recovery in food sales. Non-food stores saw sales decline by 1.3%, with clothing sales especially weak, "hardly a sign that consumers are feeling flush."

"The large increase in food sales is clearly a positive for supermarkets, but it may be a worrying sign for other parts of the economy. More people eating at home is especially bad news for restaurants, pubs and bars. These sectors are in dire need of footfall, with their costs set to rise significantly in April following the Autumn Budget," says Huggins.

He warns that few retailers will cheer these figures.

Tax Boost for Reeves

The UK government recorded a surplus of £15.442BN in January said the ONS, thanks to a £117.6BN tax haul in January 2025, an increase of £7.8BN compared to January 2024.

This was largely driven by an increase in self-assessment taxes of £36.2BN, making for the highest January figure on record.

Unfortunately for Chancellor Rachel Reeves, the surplus was £5.1BN lower than the £20.5BN forecast by the Office for Budget Responsibility (OBR) in October 2024.

Still, the current budget balance (day-to-day public sector activities) was in surplus by £24.6BN, the highest since records began in 1997.

Markets Pare Back Rate Cut Bets

The Pound extends a short-term recovery on the back of these data developments as markets reduce expectations for the number of cuts to come from the Bank of England this year.

The market now sees just two cuts as robust demand - as per these retail sales data - suggest additional easing risks exacerbating rising inflation.

This week, the ONS reported inflation unexpectedly rose 3.0% y/y in January and economists warn it is now on course to breach 4.0%, making it harder for the Bank of England to explain why it is cutting interest rates when inflation is running away from the 2.0% target.

The strong retail sales outturn reflects rising wages and a still healthy labour market. This could, however, all change in the spring when national insurance hikes and minimum wage rises are foisted on businesses.

"We expect the pound sterling to remain robust short term as the UK’s rate advantage over European peers rises," says David Alexander Meier, Economic Research analyst at Julius Baer.

Julius Baer thinks the Bank of England will likely remain cautious, holding rates in March. "The BoE's slow pace of cuts will temporarily widen the pound's interest rate advantage," explains Meier.

The Swiss bank sticks to its short-term optimistic outlook on the pound with a 3-month target of EUR/GBP 0.82, with strength likely to fade as the rate advantage narrows later this year.

This translates into a GBP/EUR equation of 1.22.

Source: Poundsterlinglive

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S&P Global Inc.

Data Interpretation

On February 21, the February S&P PMI was released:

Flash Australia Manufacturing PMI: 50.6 (Jan: 50.2). 27 month high.

Flash Australia Services PMI Business Activity Index: 51.4 (Jan: 51.2). 6-month high.

Flash Australia PMI Composite Output Index: 51.2 (Jan: 51.1). 6-month high.

At 51.2 in February, up from 51.1 in January, the headline seasonally adjusted S&P Global Flash Australia PMI Composite Output Index signalled a fifth successive monthly expansion in private sector output. While modest, the rate of expansion was the most pronounced since last August.

In the services sector, the Business Activity Index rose to 51.4 in February, accelerating for a third consecutive month, with the latest rise attributed to greater inflows of new business. In comparison, manufacturing output rose only fractionally. However, businesses generally held a cautious view of the future economic environment, leading to a decline in business confidence. Rising labor costs continued to fuel input cost inflation in the services sector.

The Manufacturing PMI index rose to 50.6, indicating a slight increase in manufacturing output, albeit at a slower pace than the services sector. The Manufacturing Production Index fell from 50.5 to 50.1, signaling a slowdown in manufacturing growth. Notably, manufacturing new orders resumed growth for the first time since November 2022, indicating an improvement in market demand. However, manufacturers remained cautious in hiring, with manufacturing employment declining for the second time in the past three months.

In terms of the job market, employment levels in Australia's private sector continued to grow for the second consecutive month, consistent with the trend in new business and overall output. Employment growth was faster in the services sector, while hiring in the manufacturing sector remained sluggish. Meanwhile, both business inventories and backlogs of work declined, indicating that some firms were still working through their previous production backlogs.

Turning to prices, input cost inflation climbed for a third consecutive month in February, rising to the highest rate since last September. Panellists often mentioned higher material, energy, financing and wage costs. Australian private sector firms continued to share their cost burdens with clients, leading to another increase in average selling prices. The rate of inflation eased to match the series average, however, as firms were unwilling to fully pass on cost increases amidst heightening competition.

Looking ahead, February's S&P Global Flash Australia PMI data outlined further improvements in private sector business conditions. However, a fall in business sentiment to the lowest level since last October provided mixed signals for near-term economic performance. Concerns listed by survey respondents included the impact of still-elevated interest rates and uncertainties surrounding both the domestic and global economy. The moderate recovery in manufacturing and weak export demand may continue to weigh on overall growth. However, with the ongoing expansion of the services sector and potential policy adjustments, there is still hope for Australia's economic recovery.

Overall, Australia's February PMI data indicates that while the growth momentum has strengthened, the economy still faces challenges from inflationary pressures and declining business confidence. In the coming months, the market will closely monitor policy directions and the recovery of global demand.

Australia February PMI

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Michelle

Economic

Forex

NZD/USD holds loses following approximately 1% gains registered in the previous session, trading around 0.5760 during the Asian hours. The New Zealand Dollar (NZD) loses ground following domestic Trade Balance data released on Friday.

New Zealand recorded a trade deficit of NZD 486 million in January 2025, reversing from December’s revised surplus of NZD 94 million (previously NZD 219 million). Goods exports declined to NZD 6.19 billion from NZD 6.67 billion, while imports rose to NZD 6.8 billion from NZD 6.62 billion.

The Reserve Bank of New Zealand (RBNZ) lowered interest rates by 50 basis points to 3.75% during its latest policy meeting on Wednesday, in line with expectations. Reserve Bank of New Zealand (RBNZ) Chief Economist Paul Conway noted on Friday, “Official Cash Rate (OCR) forecasts indicate another 75 basis points (bps) easing.” Governor Adrian Orr indicated earlier that additional rate cuts are likely in the coming months as inflation eases, with policymakers aiming to support the weakening economy.

However, the NZD/USD pair gained ground as the US Dollar (USD) struggled amid weak jobless claims data. US Initial Jobless Claims for the week ending February 14 increased to 219,000, surpassing the expected 215,000. Continuing Jobless Claims also rose slightly to 1.869 million, just under the forecast of 1.87 million.

Additionally, the NZD/USD pair saw gains amid improved market sentiment after US President Donald Trump announced potential progress in trade negotiations with China, easing market concerns over tariffs.

Source: FXSTREET

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Data

France February PMI: Economic Slide Deepens, Services Sector Drags on Overall Performance

Japan's February PMI: Services Support Economic Expansion, While the Manufacturing Remains in the Doldrums

EUR/USD Poised to Renew Two-Month Highs as Buying Momentum Builds

Key drivers behind EUR/USD’s rise

Technical analysis of EUR/USD

Conclusion

Source: ACTIONFOREX

GBP/JPY Jumps Above 190.50 after Upbeat UK Retail Sales Data

Source: FXSTREET

Pound Sterling Rallies Against Euro and Dollar on Retail Sales, Borrowing Surprises

Tax Boost for Reeves

Markets Pare Back Rate Cut Bets

Source: Poundsterlinglive

Australia's February PMI: Private Sector Growth Accelerates, Services Sector Drives the Surge

NZD/USD Remains Subdued Near 0.5750 Following Trade Balance Data

Source: FXSTREET

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