Euro-Zone Manufacturing Purchasing Managers Index (PMI)

This is a gauge of the overall performance of the European manufacturing sector carried out by asking executives about sales and employment outlook, the survey strives to give information on the business climate that can lead to developments in employment, output as well as consumption. It is important to note that this survey is about the perception of the executives and is not based on actual figures; it is however note worthy that these executives derive their perceptions from tangible statistics in their possession.

How important is it?

Even though it does not give the real figures, this index is important since the source is from executives in business who are quite reliable when it comes to making projections of on coming trends in their various sectors. When these executives express their opinions about the anticipated on-coming activity it is based on observations they have arrived at judging from the orders they have already made or the goods they already have produced but have been unable to sell due to decline in demand among other factors. This opinion is therefore never very far from the truth.

How is it computed?

The purchasing managers from across the European countries are interviewed with the objective of getting their perception on the impending economic activity in their respective countries. These results are then quantified into an index where zero percent represents long term manufacturing condition

How does it affect the forex trade?

Although it may not affect the forex trade drastically, this index combined with some other indicators that may lead to a confirmation of the indices’ projection may cause governments to make some changes in monetary policies. If the index projects an unusual change in the purchasing trends, it can be interpreted to mean sudden growth or economic decline depending on the projected change. If the change signifies an increase in economic activity such as an increase in purchases of raw materials for production, the governments may brace them selves for economic growth thus opting to hold interest rates. If on the other hand the governments see a possible decline in activity due to decreased purchases and orders of materials, it may signal the introduction of lower interest rates as an incentive to investors to borrow money to boost investment activity.

How does it affect the stock market?

The stock market basically thrives on perceptions. If investors get the perception that production is about to decline, it is very automatic for them to try to hurriedly sell off their holdings in socks where the decline is eminent before the effects start getting felt since they are likely to make more losses once the effects get noticed. If investors get an insight into the possibility of growth in a certain sector, they purchase shares in the specific sectors in anticipation for an increase in demand and subsequent increase in the share price. This attitude from share holders will result in the increase and decline in stock price according to the perceptions created by the reports.

Hi! You're viewing as a guest. To access our special forex trading resources, Sign up today. You'll get unlimited access to our forex currency trading systems, tools, articles, news and more.