Wednesday December 3, 10:10 AM
UPDATE 1-Eurozone PMI plunges, pressure on for big ECB cut
By Nigel Davies
LONDON, Dec 3 (Reuters) - The euro zone's services economy fell deeper into recession in November than initially thought, adding pressure on the European Central Bank to cut interest rates on Thursday by more than the 50 basis points expected.
A key survey of euro zone companies also showed that inflationary pressures eased in the euro zone's dominant services sector, making it easier for the ECB to cut rates as widely expected.
The Markit Eurozone Purchasing Managers Index for services companies, which covers banks to bars, plunged to 42.5 in November from October's 45.8 level, the lowest in the survey's 10-year history.
That was well below the preliminary flash reading of 43.3 and economists' forecasts and considerably below the 50.0 mark that divides growth from contraction.
The revisions will bolster those in the market who are forecasting the ECB to cut rates by more than the 50 basis points that most economists predict at its rate-setting meeting on Thursday.
December bund futures hit a new contract high of 124.04 after the data, while yields on ten year bunds fell to 3.0 percent. A move below 2.997 percent would be the lowest in the euro's lifetime. European stocks also extended losses after the data.
'It is quite outstandingly low. There are record lows in all countries apart from Germany, and even Germany was down quite substantially,' said Juergen Michels at Citi.
'There is ample room for the ECB to cut rates ... We think 75 basis points will be the compromise, but we would not rule out a cut by 100 basis points,' he added.
Earlier data showed services activity sank lower than expected last month in the euro zone's two largest economies of Germany, to 45.1 from 48.3, and in France, to 46.2 from 47.5.
In Germany, some companies reported corporate clients were delaying or cancelling orders because the global financial crisis had left them short of working capital, Markit said.
All seven sub-indices of the euro zone PMI were revised lower from the flash estimate. That included prices paid for and charged by companies after a month of further steep falls in oil prices.
Official inflation in the euro zone collapsed to 2.1 percent in November from 3.2 percent in October, coming close to the ECB's ceiling of close to, but below 2.0 percent.
Michels at Citi said there were signs now that inflation was not just diminishing, but it was disappearing.
The slide in the services PMI, coupled with an ugly reading for the manufacturing sector released earlier this week, took the Composite index of the two down to 38.9, a new record low, from 43.6 in October.
Notably for the Composite indicator, the input prices index fell to 49.1, the first time it has been under the 50 mark since July 2003.
The French services PMI saw business activity and new business both revised down to fresh lows for the 10-1/2 year old series. Prices charged were revised down to 46.5, their lowest level since December 1998.
And there is nothing to suggest that things may improve any time soon for the services sector.
Employers cut more jobs in November. The services employment index fell to 47.9 in November from 48.4 the previous month, slightly lower than the flash and the fifth month it has been in contraction.
New business is just not coming in as global demand falls, with the sub-index falling to a new survey low of 40.4, revised down from the preliminary 41.1 reading.
The index of business expectations 12 months out is also at survey lows, easing to 41.6 from 42.3 the previous month.
((FOR FULL SERVICES PMI DATA.............))
((FOR GUIDE TO ALL PMI INDICES............))
Index copyright and database rights owned by Markit: unlicensed copying strictly prohibited
(Editing by Ruth Pitchford and Andy Bruce) Keywords: PMI SERVICES/EUROPE
|
|
|
Send Article by Email
Send Article by IM
Blog This with Y! 360
Printable View
