Spain’s services PMI increased to 55.1 in July, exceeding the expected 52.5, and up from June’s 51.9. The Composite PMI also grew to 54.7 from 52.1, indicating strong economic performance in the services sector as summer advances. Spain experienced the fastest new business growth since February, mainly driven by domestic demand. A robust GDP growth of 0.7% in the second quarter supports expectations for ongoing expansion, with contributions from both services and manufacturing.

Activity In The Services Sector

There has been a significant rise in services sector activity, fueled by effective marketing and improved service quality. Domestic demand has outpaced foreign demand, partly due to ongoing global trade policy uncertainties. However, a new US–EU trade agreement may temporarily alleviate some concerns. Higher activity levels have resulted in increased capacity utilization, evident in rising work backlogs and better employment dynamics. Confidence is high, indicating continued hiring, especially in accommodation and food services, where migration has helped fill labor shortages. While input cost inflation has moderated, price pressures in the services sector are still above pre-pandemic levels. Wage growth is a significant factor contributing to rising output prices.

Spain As Europe’s Growth Engine

The strong July services data confirms that Spain is a vital growth driver for Europe. This reinforces the trend of the domestic economy exceeding expectations. Therefore, it may be wise to increase long positions on the IBEX 35 index through futures or call options in the upcoming weeks. This outperformance isn’t new; a similar trend was seen in 2024 when the IBEX 35 surpassed the 11,000 mark while other European indices lagged. Recent data suggests this trend is widening again, making a long position in Spain and a short position in Germany an appealing strategy. This approach could yield profits from relative strength even if the broader European market remains stable. The report highlights ongoing price pressures driven by wage increases, which is crucial for our outlook on the European Central Bank (ECB). This echoes the persistent inflation observed in 2024, which complicated the ECB’s plans for rate cuts after its initial adjustments. Traders should be cautious not to overestimate aggressive ECB easing, which should support the Euro. We view this as a reason to maintain a bullish outlook on the Euro, especially compared to the US dollar. While the new trade agreement with the US brings some stability, underlying strength in parts of the Eurozone economy, like Spain’s latest addition of 43,955 non-farm payroll jobs, could be undervalued. Buying near-term EUR/USD call options presents a defined-risk opportunity for potential upside. Create your live VT Markets account and start trading now.

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