The Eurozone HCOB Composite PMI came in at 48.6 in April. This was below the expected 50.2.
A reading below 50 indicates overall business activity is shrinking. A reading above 50 indicates overall business activity is expanding.
Eurozone Growth Signal
Looking back, the weak Composite PMI data from April 2025 was a clear signal of the economic contraction we saw through the second half of that year. That reading of 48.6, well below the 50-mark for growth, prompted us to anticipate the European Central Bank’s pivot towards easing. The ECB did follow through, cutting its main deposit rate by 50 basis points between September and December 2025.
This historical context makes us cautious on the Euro, even after its recent stabilization. With German industrial production for February 2026 showing a mere 0.2% increase month-on-month, the fundamental weakness persists. We see value in buying put options on the EUR/USD pair, targeting levels below 1.05 as a hedge against another downturn.
European equity markets, particularly the EURO STOXX 50, seem to have priced in a soft landing that is not yet guaranteed. The VSTOXX volatility index is currently trading near a low of 14.5, which we believe is too complacent given the uncertainty. We are considering strategies like purchasing VSTOXX call options or creating bearish put spreads on major European indices to protect against a potential drop.
Rates Inflation Outlook
The interest rate path from here is now less clear. While the slowdown that began in 2025 argues for more cuts, the latest Eurozone Harmonised Index of Consumer Prices for March 2026 came in at 2.7%, slightly above the 2.5% forecast. This situation suggests positioning for a flatter yield curve, as the market may be overestimating the pace of future ECB rate cuts.
