Goldman Sachs reports that recent macroeconomic data points to a stronger performance in the United States relative to the United Kingdom and the Euro area, with emerging evidence that the energy shock is having uneven regional effects.
According to Goldman, the composite Purchasing Managers' Index (PMI) for the US has held relatively steady since February. By contrast, comparable composite PMI measures for the UK and the Euro area have dropped by roughly four to five points over the same period. The investment bank's data surprise series also registers clear outperformance of US indicators in recent months.
Goldman Sachs attributes this regional divergence primarily to asymmetric growth effects stemming from the energy shock. The firm also stresses that starting conditions prior to the shock remain relevant in explaining current differences across economies.
Before the conflict that precipitated the energy shock, Goldman had been working off a US growth baseline that it considered solid. That baseline was expected to be supported by a combination of fiscal stimulus, easier financial conditions tied to anticipated Federal Reserve rate cuts, and lower tariff pressures.
On currency and rates, Goldman notes a dollar-positive shift in rate differentials this month. While the bank characterizes rate differentials as having played a secondary role in foreign exchange moves during the energy shock, it emphasizes that real rate differentials still matter. Using recent data, Goldman estimates that about 20 basis points of spread widening in two-year real rates between the Euro area and the US would be expected to translate into roughly 0.4% of downside pressure on the EUR/USD exchange rate.
The bank's analysis links developments in the energy complex, short-term real interest rates, and headline economic indicators as connected forces shaping relative regional performance and FX moves. Goldman highlights both the direct impact of the energy shock and the influence of initial economic conditions in producing the observed divergence in data.
Summary: Goldman Sachs finds US economic indicators outperforming those in the UK and Euro area amid an energy shock that has had asymmetric growth effects; real rate differentials have moved dollar-positive and are estimated to have placed downward pressure on EUR/USD.
Key points:
- US composite PMI has remained relatively stable since February, while UK and Euro area PMIs have fallen by about 4-5 points.
- Goldman's data surprise series shows US indicators outperforming recent months.
- Real rate differentials shifted in a dollar-positive direction this month; an estimated 20 basis point EU-US 2-year real rate spread widening implies around 0.4% downside pressure on EUR/USD.
Risks and uncertainties:
- Asymmetric impacts from the energy shock could continue to drive divergent growth paths across regions - affecting energy-intensive sectors and regional growth dynamics.
- Movements in real rate differentials could exert additional currency pressure, with implications for foreign exchange markets and trade-exposed businesses.
- Differences in initial economic conditions across regions introduce uncertainty about the persistence and breadth of the observed divergence in data.