German factory orders rise unexpectedly

On September 5, Germany's private sector purchasing managers' index (PMI) report for July came out. The data showed that Germany's factory orders unexpectedly rose 2.9% in July, following a 4.6% increase in orders in June after another upturn.

According to data released by the German Federal Statistical Office (Destatis):

• New orders for the manufacturing of other means of transportation (e.g., aircraft, ships, trains, military vehicles) surged 86.5% in July;
• Orders in the electrical equipment manufacturing industry rose 18.6%;
• Orders in the mechanical engineering industry, on the other hand, slipped 6.1 percent;
• Excluding large orders, overall new orders slipped 0.4%.

Looking at the broader economy:

• Orders in the capital goods sector grew by 3.5% in July, while orders in the intermediate goods sector increased by 4.4%;
• New orders in the consumer goods sector fell 5.8%;
• Overseas orders rose by 5.1%, with orders within the euro area increasing by 5.9% and orders outside the euro area rising by 4.6%;
• Domestic orders were unchanged;
• From May through July 2024, factory orders increased 1.0 percent over the previous three months.

The increase in factory orders in July contrasts with the downward trend in new orders indicated in the Manufacturing PMI survey, easing the risk of a recession in Germany. According to the August HCOB Manufacturing PMI survey, new work orders fell at the fastest pace since November 2023, and new export orders also fell sharply. The manufacturing PMI index fell to 42.4 in August from 43.2 in July.

German Factory Orders and the ECB's Path to Rate Hikes

Survey-based indicators of the German economy point to an increased risk of a deep recession. However, the factory orders data provided a more optimistic outlook for the German economy. This consistently good factory orders data may alleviate concerns about a prolonged recession in Germany.

However, the factory orders data is not expected to have a significant impact on the ECB's rate hike path. The ECB's main focus remains the services sector and inflation levels.

Impact of Factory Orders Data on the EUR/USD Exchange Rate

Prior to the release of the Factory Orders report, the EUR/USD exchange rate rose to 1.10865 before falling back to a low of 1.10746. With the release of the Factory Orders data, the EUR/USD briefly fell to 1.10796 before rebounding to 1.10854.

On Thursday, EUR/USD rose 0.02% to reach 1.10840.