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Euro-Area PMI Drops into Contraction; BoE Hesitant on QE

Euro-Area PMI Drops into Contraction; BoE Hesitant on QE

David Schutz,

THE TAKEAWAY: European PMIs weaker than expected -> Lagging growth slows manufacturing production -> EURUSD unmoved as market focus remains on macro developments

Purchasing manager’s index in the 17-nation Euro bloc slipped from expectations in January, coming in at 49.7 versus the expected 50.5. A number below 50 signifies market contraction. The losses were led by falls in the manufacturing and services sectors.

European powerhouse Germany saw its PMI manufacturing fall to 50.1 from December’s 51.0. Economists had expected a rise to 51.5 in January. German services came in at 52.6 versus the expected 53.9. French numbers were similarly weak. The Euro area is struggling to bounce back from very weak economic growth in the last section of 2012.

Meanwhile, Bank of England Minutes released today showed that some board members were hesitant to increase quantitative easing at last week’s meeting. Members stated the new measures could send a signal that the economy is in a worse position than it actually is. The BoE voted last week 7-2 to extend easing by 50 billion pounds. The two dissents came from dovish members Miles and Posen who favored a larger easing package of 75 billion.

The Euro was unmoved after today’s release as market focus remained on assessing the impact of the last Greek bailout. European leaders have given Greece nine days to show that the country has the capacity to implement reforms demanded as conditions for the bailout.

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