European PMI Weakens 2012.03.22

March 22, 2012 20:38

Markit reported Thursday the European region’s purchasing manager index (PMI) dropped to 48.7 in the three months to March from 49.3 in the three months to February 2012. This is the second straight month of a decline,denoting a contraction of business in the Eurozone.The first quarter of 2012 experienced a decline in output after a drop in the final quarter of 2011.Manufacturing output as well as service sector activity both receded in the March, exhibiting the worst performancesfor three and four months respectively. In Germany output gained but the rate of increase slowed to a three-month low. Yet, output reduced in France as well as in the rest of the region.Incoming new business lowered at the quickest rate in both manufacturing and services since December 2011. Goods productions suffered the highest rate of decline due to decreased domestic demand as well as new export orders.

 

 

 

Companies reduced employment levels for the third consecutive month and while only at modest levels they were at the highest level in two years. To add to this, the manufacturing industry alone reduced at the fastest rate since March 2010.Furthermore, input prices rose at the highest level since June 2010 while the rate of inflation was around the 14-year history average of the survey. In the breakdown, manufacturing raw material prices increased at the quickest rate for nine months while the service sector cost inflation rose the highest in three months. Analysts are optimistic that the downturn will only be suffered short term as the service sector reported the highest level of expected growth in the year since July 2011.

The EURUSD came under selling pressure after the PMI report was released. The pair dropped below 1.3175 and is currently testing support at 1.3160. If this level is broken, further downside remains at 1.3080. 

Eugene Ross, Analyst

Admiral Markets

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