€ Euro Sets Fresh 2-Year Lows as Manufacturing and Service Outputs Shrink

24 May 2012 08:40 GMT THE TAKEAWAY: EC PMI Manufacturing down to 45.0, PMI Services down to 46.5 -> German business confidence slows on worries over Greece -> Euro sets new 2-year lows
It’s more bearish news for the Eurozone as production and manufacturing sectors both dropped in May more than expected. The purchasing managers index for manufacturing was down to 45.0 from 45.9 in April, instead of an expected rise in manufacturing. The composite index for services was down to 46.5 from 46.9 the previous month, instead of the expected 46.7, according to Markit Economics. Any level underneath 50 indicates a contraction.
Europe’s biggest economy and main backer of austerity contributed to the manufacturing drop. Germany’s index for manufacturing came in at 45.0 for May, way below the expected 47.0. However, Germany’s services output improved as the PMI came in at 52.2, above the expected 52.0 for March. Earlier today, France’s services and manufacturing were both reported to be contracting faster than expected.
The drop in output could support those who want to scale back austerity measures in Europe and instead stimulate growth to battle the severe debt levels.
The debt crisis seems to be worrying German businesses. German IFO current assessment came in lower than expected at 113.3 for May. IFO expectations was also at a lower than expected 100.9. The negative German manufacturing and business confidence follows an earlier confirmation of the country’s economic expansion in Q1 of this year.

EURUSD set new 2-year lows at 1.2515 following the weak PMI’s before snapping back up above the previous support level at 1.2544.
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24 May 2012 08:40 GMT

::: Cable Extends Declines Following Weak UK Service Sector Expansion

03 May 2012 09:07 GMT THE TAKEAWAY: UK PMI Services comes in at 53.3 for April, less than 54.1 expected -> Gains in new business in the service sector were outweighed by growing margins -> Cable rises, but sterling takes gains against euro UK Purchase Manager Index for Services came in at 53.3 for April, it’s lowest point in 2012 and well below analysts’ 54.1 expectations. The index result is still above 50 and therefore signals continued growth in the service sector, but it is lower than last month’s 55.3 result. The PMI has remained positive for 16 consecutive months, but April’s expansion was the weakest since November.
Service sector managers’ expectations remained high in April as there were gains in new business; however the margins for business rose as input costs went up and output charges remained the same when compared to March.
The PMI service is a survey based on material purchases in the service industry and managers’ expectations for the future; the index can be seen as a good gauge for the economy on whole, as services provide for 75% of the UK’s output. April’s PMI manufacturing result was also weak and the UK has entered a technical recession following last quarter’s lower GDP.
 Cable fell following the PMI release, continuing an earlier session drop from the 1.6200 level. However, sterling gained against the euro following the index news, possibly the result of further risk-off sentiment.