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Prior 50.0Spain’s manufacturing sector activity falls back into contraction territory as the Middle East conflict starts to have an impact. The heightened uncertainty raised by the conflict and higher energy prices are feeding into supply-chain disruptions as well as rapidly rising prices for fuel and inputs. And that is resulting in manufacturers reporting accelerated
declines in output and new orders.Besides that, employment conditions also declined with the outlook also taking a hit amid a steep deterioration in manufacturing sector confidence.Of note, input price inflation accelerated sharply to its highest level since late 2022. Expect this trend to also show up across the whole region with regards to the PMI readings today. In turn, that will keep the ECB guarded amid fears of inflation spiking higher in the months ahead. For now, headline inflation is the one being impacted but it could very well spill over to core prices down the road.HCOB notes that:“Spain’s manufacturing economy returned to contraction
territory during March as the Middle East war put pay
to any hopes in February of a short-term improvement
in performance. Output and new orders both fell, whilst
confidence collapsed in the face of hostilities in the
Middle East with firms extremely worried about the
prospect of a prolonged global economic slump in the
face of an energy-induced surge in inflation.
“Much of the outlook remains dependent on how the
conflict now unfolds. A quick resolution would likely only
mean a temporary setback for sector performance, but
for the moment, business conditions have deteriorated
noticeably. Alongside the slump in confidence, input cost
inflation has accelerated rapidly and now stands at its
highest level since late 2022. Not surprisingly, supplychain disruption is also widespread, with input delivery
times lengthening markedly. And firms are somewhat
understandably responding to heightened uncertainty
and falling order books by cutting jobs and lowering
purchasing activity accordingly.”
This article was written by Justin Low at investinglive.com.
💡 DMK Insight
Spain’s manufacturing sector slipping into contraction is a red flag for traders: The recent downturn signals broader economic instability, likely exacerbated by the ongoing Middle East conflict. As energy prices rise and supply chains face disruptions, traders should brace for potential volatility in related markets, especially commodities and currencies tied to energy. This contraction could lead to a ripple effect, impacting the euro against major currencies like the USD. If the euro weakens, it might create opportunities for forex traders to capitalize on short positions against the euro, particularly if it breaks below key support levels. But here’s the flip side: if the conflict escalates further, we could see a flight to safety, boosting the euro temporarily as investors seek refuge. Keep an eye on the PMI data and any shifts in energy prices, as these will be crucial indicators of how deep this contraction could go. Watch for a break below the 1.05 level in EUR/USD for potential short entries, as that could signal further weakness.
📮 Takeaway
Monitor the EUR/USD for a break below 1.05, which could indicate further euro weakness amid Spain’s manufacturing contraction.
