Key Takeaways
- Eurozone services activity showed signs of stabilization in July, with Italy leading growth (52.5) while Germany (49.8) and France (49.6) remained just below the expansion threshold.
- Foxconn (2317) reported a massive 54.2% surge in July sales, driven by relentless demand for AI infrastructure and servers.
- Japan's Cabinet officially approved a plan to slash the food consumption tax from 8% to 1% starting April 2027 to combat persistent inflation.
- Price pressures remain a concern in Europe, as German service providers reported a rebound in input costs and output prices at the start of the third quarter.
- Foxconn issued a positive Q3 outlook, expecting both quarter-on-quarter and year-on-year growth despite a "volatile" global geopolitical environment.
European Economy: Services Sector Nears Inflection Point
The Eurozone’s service sector moved closer to broad-based stabilization in July, according to the latest S&P Global PMI data. Italy emerged as a bright spot, with its Services PMI jumping to 52.5 (up from 50.2 in June), marking the strongest growth in six months. This expansion was supported by a significant rise in new business and the fastest rate of job creation in over a year, signaling resilient domestic demand.
In contrast, the region's largest economies, Germany and France, continue to hover just inside contraction territory. Germany’s Services PMI rose to 49.8, beating estimates of 49.6 and indicating that the sector is nearly flat. France also showed improvement, with its Services PMI climbing to 49.6, its highest level since the outbreak of recent Middle East tensions, as new business volumes rose for the first time since last November.
Despite the uptick in activity, inflationary pressures have not fully subsided. German firms recorded faster increases in both input costs and output charges, partly attributed to wage pressures and rising fuel costs. Analysts note that while the Composite PMI for the Eurozone has returned to expansion territory (52.0), the recovery remains fragile and sensitive to geopolitical shifts.
Tech & Manufacturing: Foxconn Rides the AI Wave
Foxconn (2317), formally known as Hon Hai Precision Industry, continues to benefit from the global AI boom, reporting July sales of NT$821.8 billion, a 54.2% increase year-over-year. The company, a primary assembler for Nvidia (NVDA) and Apple (AAPL), noted that its Cloud and Networking division saw robust growth due to "strong demand for AI products."
Looking ahead to the third quarter, Foxconn expects operations to maintain momentum. The company anticipates growth on both a sequential and annual basis, specifically highlighting that AI rack shipments are expected to remain on an upward trajectory. However, management cautioned that they are closely monitoring "volatile global political and economic situations" that could impact supply chains.
Global Policy: Japan’s Bold Tax Maneuver
In a significant policy shift, Prime Minister Sanae Takaichi’s Cabinet has approved a plan to reduce Japan's consumption tax on food and beverages to 1% from the current 8%. The cut, set to take effect in April 2027 for a two-year period, is designed to provide immediate relief to households struggling with the rising cost of living.
The move is expected to result in a revenue loss of approximately 4.4 trillion yen ($27 billion) annually. While the plan has been approved by the ruling Liberal Democratic Party (LDP), it faces criticism from fiscal hawks who warn it could weaken Japan's fiscal position and pressure the yen. The government intends to fund the measure through "fiscal reforms" and non-tax revenues rather than issuing new deficit-covering bonds.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.