The HCOB Eurozone Composite PMI for March came in at 50.7. This was above expectations of 50.5.
A reading above 50 indicates expansion, while below 50 indicates contraction. The March result therefore points to a mild increase in overall business activity across the eurozone.
The March composite PMI data coming in at 50.7 is a clear signal of expansion for the Eurozone economy. This beat suggests underlying strength we hadn’t fully priced in. It points towards a potential acceleration in growth for the second quarter.
This surprising economic resilience will likely force the European Central Bank to reconsider the timing of any planned interest rate cuts. We saw a similar pattern back in 2023 when stubborn service sector inflation kept the ECB from pivoting despite weak manufacturing. Therefore, we should adjust interest rate derivative positions, anticipating that rates may stay higher for longer than previously thought.
For our currency positions, this strengthens the case for a stronger Euro in the near term. The Euro has recently been under pressure, trading near 1.07 against the US dollar, but this data provides a solid fundamental reason for a reversal. We should consider buying EUR/USD call options to capitalize on potential upside over the next several weeks.
This economic strength is also bullish for European equities, especially cyclical stocks. The Euro Stoxx 50 index, which gained over 12% in the first quarter of 2024, often performs well during periods of economic expansion. We view this as a good time to add exposure through long futures positions on the index.
From our perspective today, this contrasts sharply with the mood in 2025. We remember the widespread recession fears throughout that year, which led to very defensive positioning across portfolios. This positive PMI print is one of the strongest signs yet that the economic slowdown of 2025 is firmly behind us.
Implied volatility on European assets may also decline as this data removes some near-term economic uncertainty. The VSTOXX index, a key measure of Euro Stoxx 50 volatility, has been elevated, and we could see it drift lower towards the 15-level. This makes strategies like selling out-of-the-money put spreads on equity indices an attractive way to collect premium.
