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Contraction Rate of Euro-Zone Composite Output is Slowing

Contraction Rate of Euro-Zone Composite Output is Slowing

2012-08-03 08:42:00
Benjamin Spier, Technical Strategist

THE TAKEAWAY: Euro-zone composite PMI revised higher to 46.5, PMI services revised higher to 47.9 –> Markit forecasts another quarterly decline -> Euro correcting from yesterday’s decline

The Euro-zone composite Purchasing Managers’ Index for July was revised higher, confirming a second month of a slowing rate of contraction in industry activity. The PMI was revised 0.1 higher to 46.5, higher than June’s 46.4 PMI, according to Markit’s index. Euro-zone PMI for services was also revised 0.3 higher to 47.9 in a final estimate.

July’s composite PMI was the 10th of the past 11 months that signaled a contraction in composite output. A PMI below 50.0 indicates a contraction in the sector’s index. It was the sixth straight month that the PMI indicated a contraction in services activity.

German PMI for services was revised to expanding at 50.3, versus July’s previous estimate at 49.7. June’s 49.9 PMI was the first time the German services industry indicated a contraction since September of last year.

The downturn in Euro-zone output in July reflected a lack of demand for goods and services, according to Markit’s release. Incoming new work dropped to the lowest degree since June 2009, and employment fell for the seventh straight month.

Meanwhile, in services, the outlook for sector activity dropped to its lowest since March 2009 and job losses hit a three-month record low.

Markit Chief Economist Chris Williamson spoke of the negative outlook July’s PMI’s provide for the Euro-zone, saying, ‘the Eurozone continued to contract at a quarterly rate of approximately 0.6% in July, suggesting the region looks set for a second consecutive quarterly decline’.

In hopes of checking the economic decline, European Central Bank President Draghi spoke further yesterday about the possibility of buying the sovereign debt of struggling countries in secondary markets, however he said that the bank doesn’t have Bundesbank’s Weidmann’s support for such measures.

The Euro has slowly risen above 1.2200 against the US Dollar in today’s trading, following the pair’s drop yesterday to week-long lows below 1.2150. The key 1.2300 psychological could provide the next resistance.

Contraction_Rate_of_Euro-Zone_Composite_Output_is_Slowing_body_eurusd_daily_chart.png, Contraction Rate of Euro-Zone Composite Output is Slowing

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