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Eurozone PMI Services Drops to Four-Month Lows

Posted: Wednesday, September 23rd, 2020

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The Eurozone PMI manufacturing and services data were released today. Unsurprisingly, PMI services dropped to a four-month low, well below the fifty level.

A mixed picture from the Eurozone PMIs today puts further pressure on the Euro. While the business expectations for the upcoming year hit the highest since February, investors should take them with a grain of salt. According to the survey, the expectations consider that disruptions caused by the virus will ease into the last part of the year.

Eurozone PMI

However, Europe suffers from a second wave of infections. Madrid, one of Europe’s main centers, suffers from partial lockdowns. France and Germany also noticed a sharp increase in daily cases. Therefore, optimism does not bode well into the overall picture.

Eurozone PMI Services Back Into Contractionary Territory

The PMIs are surveys. They reflect businesses’ expectations in the period ahead and offer a glimpse into what to expect next. Moreover, economists interpret the result based on the fifty level.

Higher levels than the fifty show expanding economic activity. On the other hand, a move below fifty reflects a sector that contracts.

Eurozone PMI services came at 47.6 in September, way below the 51 value expected. Because it dropped below the expansion/contraction benchmark, it delivers a warning sign regarding the economic recovery ahead.

The services sector plays a crucial role in the Eurozone economies, which are service-based ones. Therefore, a contraction in the services sector will likely have a negative impact on the upcoming Eurozone Gross Domestic Product (GDP).

Traders and investors use the PMI releases to form an educated guess about the evolution of different components within sectors. As such, the employment component offers a clue about the upcoming unemployment rate. Often, changes in the employment component matter more than the actual PMI.

September services data reveals that the job cuts in the sector continue. While the manufacturing sector noted steady improvements, remember that the services one weighs more on the GDP.

All in all, a weak flash report for September 2020, despite a bounce in the manufacturing PMI. Eurozone PMIs represent one of the most important economic releases when interpreting the economic performance in the area.

For currency traders, the Eurozone PMI comes in second as important after the Harmonized Index of Consumer Prices (HICP). Thus, it comes as no surprise that sharp changes in expectations, as shown by the PMIs, have a strong impact on the EUR’s strength.

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