The Eurozone economy is sending mixed signals as it navigates through a period of uncertainty. In recent developments, the labour market has shown resilience with rising employment in the third quarter and a record-low unemployment rate of 6.3% in November. However, this positive sentiment is tempered by the technical outlook for altcoins, which projects a continuation of the pullback with a potential double-digit crash. Moreover, the Moving Average Convergence Divergence (MACD) indicator signals a bearish crossover in Solana (SOL) and Cardano (ADA), adding to the cautious market sentiment.
The December Purchasing Managers' Index (PMI) offered some relief by partially rebounding from its significant decline in November. The European Central Bank (ECB) has responded by removing its previous pledge to maintain a restrictive monetary policy. Instead, it plans to utilize its three-tiered reaction function inputs to set policy rates, reflecting its adaptive approach to the evolving economic landscape. Meanwhile, the upbeat U.S. Non-Farm Payroll (NFP) report has reinforced market expectations that the Federal Reserve will pause its rate-cutting cycle later this month.
Despite these developments, December's data has confirmed a narrative of weakening momentum in underlying inflation. The contraction implied by PMIs during December was entirely driven by the manufacturing sector, with France and Germany exhibiting the weakest performances. Adding to the concerns, unemployment expectations in consumer surveys have jumped to a two-year high in December, highlighting potential challenges ahead.
The Ifo index recorded a drop to 84.7 in December from 85.7, a larger decline than anticipated, primarily driven by lower expectations for the economy. While headline inflation rose to 2.4% year-on-year in December (0.3% month-on-month seasonally adjusted), core inflation remained unchanged at 2.7% year-on-year. Despite these inflationary pressures, the composite PMI saw a rise to 49.6 in December, fueled by a larger-than-expected bounce back in services.
The ECB faces ongoing uncertainty regarding the labour market, as survey indicators have notably softened in previous months. The average composite PMI remains lower than in the third quarter, supporting the view of an economic contraction in the fourth quarter with GDP growth projected at -0.1% quarter-on-quarter.