Today’s Eurozone PMI release strongly beat expectations, especially in the services sector. Coming at the end of a week when the Euro traded with a continuous bid tone, the release should put a floor behind any potential selloff unless market participants decide to take profits ahead of the weekend.
PMI’s are interpreted against the 50 level – a sector expands if it shows a level above 50, and contracts otherwise. However, the data reflects just that – expansion or contraction and does not include percentages or absolute terms.
Eurozone PMI Manufacturing Back above 50
The manufacturing sector in the Eurozone is not the most relevant one. While having a big weighing on the GDP, it is outpaced in importance by the services sector.
Nevertheless, it employs many people, and it is closely watched by economists and investors alike. Today’s data came at nineteen months high, confirming an encouraging start for the third quarter.
On the flip side, job losses remained severe for the sector, as the job cutting rate was quicker than at any time in the last decade.
PMI Services Blew Away Expectations
The comeback of the manufacturing sector is good news, but the PMI Services data is great. The Eurozone Services Activity Index sits at twenty-five months high, printing 55.1, way above expectations of 51.
It reflects the improving economic conditions as most European economies came back from the lockdowns. In some parts of Europe, like Germany, the pickup in the services sectors is simply amazing, the PMI for the local services sector reaching 56.7 in that country only.
Other parts of the Eurozone, like Spain, were more affected. For a country heavily dependent on tourists’ arrival, Spain lost revenue due to the coronavirus crisis. Moreover, it is unlikely that the season will be saved as the summer is in full swing.
All in all, a solid economic report with plenty of positive data. In the services sector, new business returns to growth. Also, in the services sector, there is a softer reduction in backlogs of work. New orders in the manufacturing sector saw the first expansion since 2018. Finally, the report shows the second consecutive increase in inputs costs in the services sector.
If only the employment data will help. Unfortunately, low levels of employment and continuing job cuts put a question mark on the positives presented by July 2020 Markit data.