European Services Continue The Progress

Daily Forex Fundamentals | Written by ecPulse.com | Jan 06 10 10:41 GMT |

Following the improvement witnessed by the manufacturing sector in the euro zone and U.K., the services sector, the leading sector in Europe, completed the progress scenario that started since the second quarter of 2009. Today, PMI services final reading for December in the euro area climbed to 53.6 from 53.0 in November. Although the reading came below estimates, but it continued its rise above 50 level, providing further clues the economy is growing in the fourth quarter. Services in the 16-nation economy were lifted by the rise in the largest economy in the region. German services soared to 52.7 from 51.4 in November; Italian PMI spiked to 53.9 from 49.8 a month earlier. On the other hand, the reading slipped in France to 58.7 in from 60.9 in November. Yesterday, PMI manufacturing for December rose to 51.6 from 51.2 in November. Consequently, PMI composite spiked to 54.7 from 53.7. The European economy is gathering strength clearing the way for a recovery in 2010. In the third quarter of 2009, the economy grew 0.4% compared with 0.2% and 2.4% contractions recorded in the second and first quarters respectively, thanks to the monetary and fiscal measures adopted by the ECB and national European governments to revive the economy. Trichet and his economic team slashed the cost of borrowing to 1% and introduced 60 billion euros spent on purchasing euro-denominated bonds. In addition, they offered to lend banks as much money as they need at the current benchmark. It is reasonable to say that the strong interventions boosted the economy that posted very weak data in the first quarter of 2009. However, sooner or later the stimulus packages will be withdrawn and the economy will rely solely on itself. Thus, the euro area may witness volatility this year before reaching full recovery in 2011, according to the EU Commission. In the U.K., services tracked the progress in manufacturing; empowering the claims that the economy will emerge from recession in the fourth quarter. The British economy eased the pace of contraction in the third quarter to 0.2% from 0.6% contraction in the second quarter. Tomorrow, BoE members will meet to set the interest rate and the amount of the APF program. The borrowing cost and the quantity of APF may remain unchanged in January, before a possible change that might take place in February when releasing the new quarterly growth and inflation reports. All 9 MPC members at the BoE voted unanimously (9-0) for keeping both interest rate and APF unchanged from November. The benchmark was left at 0.5%, while the APF quantity stagnated at 200 billion pounds; however, some analysts are predicting another increase in the amount of the APF program to 215 billion pounds proposed by Miles in November. The British economy, although improved remarkably recently, it is still lagging behind the euro zone; therefore, the economy may need another boost to accelerate the recovery that is expected to be sluggish in 2010. Ecpulse disclaimer: The content of ecPulse.com and any page in the website contain information for investors/traders and is not a recommendation to buy or sell currencies, stocks, gold, silver & energies, nor an offer to buy or sell currencies, stocks, gold, silver & energies. The information provided reflects the writers' opinions that deemed reliable but is not guaranteed as to accuracy or completeness. ecPulse is not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trades currencies, stocks, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, stocks gold, silver &energies presented should be considered speculative with a high degree of volatility and risk