THE TAKEAWAY: Eurozone Composite PMI unchanged from May, better than expected -> German PMI’s are softer than expected -> Weakening output pressures pro-austerity German government
Eurozone private sector output shrank for the fourth straight month. The Eurozone composite Purchasing Managers’ Index remained at 46.0 in June, unchanged from May’s 35-month low, according to initial assessments by Markit Economics. The PMI composite beat analysts’ expectations for 45.5, as the service index came in slightly higher than expected at 46.8, and the PMI manufacturing reached a new 3-year low at 44.8.
Besides for January’s rise, output has been on the decline since September, according to the index. A PMI below 50 indicates a shrink in output.
The usually strong Germany continued to disappoint in June, as its PMI composite came in at a 36-month low at 48.5. The German PMI manufacturing fell more than expected to 44.7, as the service index barely managed to stay positive at 50.3, still lower than the expected 51.5.
The shrinking German output indicates that the European debt crisis has managed to pressure Europe’s strongest economies. German Chancellor Angela Merkel remains steadfast in her stance against joint Euro-bonds and the government has recently said that rumors of extending the terms on Greece’s bailout agreement are unfounded. However, as the crisis spreads to its own shores, it becomes more likely that Germany will agree to loosen some austerity measures in hopes of promoting growth.
The Euro fell against the US Dollar over the past few hours as anticipation builds for the upcoming Spanish bond auction. The slightly better than expected Eurozone PMI’s reversed some of the losses, but anticipation for the auction keeps risk correlated assets under pressure.