Euro zone business wilts in May as war-driven inflation surges, pointing to Q2 GDP contraction - Reuters
1 min read
The story
Euro zone PMI data for May signals accelerating business contraction as war-driven inflation erodes demand, with indicators pointing to a Q2 GDP contraction. This stagflationary backdrop pressures EUR/USD lower, weakens European equities, and reinforces expectations of a policy divergence between the ECB (constrained by inflation) and the Fed.
The case — both sides
The house read
Short EUR via FXE or EZU as stagflation and Q2 GDP contraction risk widen the ECB-Fed policy divergence and pressure the common currency.
Wrong ifA ceasefire or major de-escalation in Ukraine could rapidly reverse energy inflation fears and catalyze a sharp EUR short squeeze; ECB surprise hawkishness above market pricing would also undercut the divergence thesis.
Published read · research, not advice