Eurozone January flash services PMI 48.4 vs 49.0 expected

<ul><li>Prior 48.8</li><li>Manufacturing PMI 46.6 vs 44.8 expected</li><li>Prior 44.4</li><li>Composite PMI 47.9 vs 48.0 expected</li><li>Prior 47.6</li></ul><p>The overall Eurozone readings are not as bad, even if it does reaffirm the sentiment from the French and German reports earlier. The downturn in the euro area economy is seen at the slowest in six months when viewed as a whole. But it is what it is, still a contraction in the economy to start the new year. That being said, the more relevant point for the ECB outlook is that price pressures are seen intensifying and that will pose a slight problem for the central bank if they are planning to change up the narrative any time soon. HCOB notes that:</p><p>“The commencement of the year brings positive tidings for the Eurozone as manufacturing experiences a widespread easing
of the downward trajectory witnessed in the past year. This positive shift is evident across key indicators such as output,
employment, and new orders. Notably, the export sector plays a pivotal role in driving the improvement of the latter, showing
better conditions compared to the end of the preceding year. </p><p>"The persistent attacks by Houthi rebels on commercial vessels navigating the Red Sea are exerting discernible impacts on
supply chains. The PMI index for delivery times has witnessed a notable dip, slipping below the 50 mark. Nevertheless,
various industry reports indicate that businesses are not caught off guard like they have been previously, having learned
from past disruptions. Many have proactively diversified their suppliers across geographical regions and enterprises,
mitigating the potential fallout from such unforeseen challenges.
In the domain of services, the contraction in output is currently moderate, echoing the trends observed in the fourth quarter
of the previous year. However, there is a silver lining as an increasing proportion of companies are actively expanding their
workforce, signalling optimism in the market. This aligns with the positive shift in overall expectations.
</p><p>"In the ongoing discourse surrounding the optimal timing of rate cuts by the ECB, the PMI price indicators align with the sentiments of the hawks. They are all about shouting “hold your horses” telling everyone to take it slow and not rush into
early cuts. Companies have faced higher input prices and were able to pass them through to their customers. As a result,
price increases are very much at odds with the recessionary environment. Thus, even as inflation remains an issue, rate
increases by the ECB are out of the question at this point in time.</p><p>"When assessing the performance of Germany and France, it is only a question who is having the tougher time. According to
the composite PMI, France is lagging behind Germany. Primarily, this discrepancy is attributed to the manufacturing sector,
where the contraction in output is more pronounced in France than in Germany. One plausible explanation is that the
external environment beyond the eurozone is showing signs of improvement, providing Germany, with its substantial export
exposure, a relative advantage.”</p>

This article was written by Justin Low at www.forexlive.com.