Euro-Zone Services PMI Revised Down to 42.5, Fueling Bets For Bold Rate Cuts

Daily Forex Fundamentals | Written by DailyFX | Dec 03 08 09:24 GMT |

The Euro-Zone November Services PMI was revised down to 42.5 from 43.3 reported with the preliminary number and down from 45.8 in October. The composite Index was revised down to 38.9 from 39.7 reported initially and versus 43.6 in October. The breakdown for the Services Index showed the reading for new business revised down to just 40.4 from 41.1 in the flash estimate and compared to 43.2 in October. The sharp deterioration in new business suggests that a quick turnaround in services activity is unlikely and indeed, the reading for business expectations was revised down to 41.6 from 42.0 in the flash estimate. The employment reading is also falling further below the 50 point no change mark, which points to an acceleration in the pace of job cuts. At the same time readings for input and output price inflation continue to fall with the reading for output prices revised down to just 47.1, which is in stark contrast to the 50.4 in October and points to a drop in output prices that will add to concerns that the Euro-Zone is heading for deflation. Not surprising then that Bund futures have rallied into the release, which will increase speculation of a bold ECB cut tomorrow. The December 10-year future is now trading at 123.47, up 50 ticks on the day.

Meanwhile, the German November Services PMI was revised to 45.1 from 46.2 and versus 48.3 in October. Expectations had been for a confirmation of the preliminary number so data were disappointing. The breakdown shows a downward revision to the reading for new business, which at 43.4 points to ongoing contraction and does not make much hope for a quick turnaround. The reading for business expectations was confirmed at 31.4, unchanged from the preliminary number and down from 34.5 in October. At the same time input and output price inflation is coming down sharply. The reading for input prices was revised down to 51.7 from 53.8, which is the lowest since June 2005. The reading for output prices fell below the 50 point no change mark, which suggests falling prices for the first time in nearly 3 years. In addition, The French November Services PMI was revised to 46.2 from 46.6 reported initially and versus 47.5 in October. The Italian November Services PMI dropped to 39.5 from 45.7 in the previous month.

DailyFX

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