German PMIs Send a Ray of Hope after the Revisions to Growth Forecasts

It was a busy day for the EUR/USD on the economic calendar. Prelim December private sector PMI numbers for France, Germany, and the Eurozone were in focus.

After a modest increase in the Eurozone Composite PMI in November, interest in the numbers was significant following the ECB’s downward revision to 2023 growth forecasts from 0.9% to 0.5%.

This morning, member state numbers delivered mixed results.

In December, France’s manufacturing PMI rose from 48.3 to a 4-month high of 48.9. However, the services PMI fell from 49.3 to a 22-month low of 48.1. Economist forecast PMIs of 48.2 and 49.1, respectively.

Germany’s manufacturing PMI rose from 46.3 to a 3-month high of 47.4, with the services PMI up from 46.1 to a 5-month high of 49.0. Economists forecast PMIs of 46.3 and 48.5, respectively.

As a result of the pickup in German private sector activity, the Eurozone, the manufacturing PMI rose from 47.1 to 47.8, with the services PMI up from 48.5 to 49.1. Economists forecast PMIs of 47.1 and 48.5, respectively.

The Eurozone Composite PMI increased from 47.8 to a 4-month high of 48.8 versus a forecasted 48.0.

According to the Eurozone Composite PMI survey,

• Despite the modest increase in the composite PMI, the average PMI for the three months to December reflected the sharpest economic contraction since 2013, excluding the pandemic period.
• While factory output fell for the seventh month, the rate of production decline slowed.
• Service sector output fell for a fifth consecutive month, but also saw a more moderate rate of contraction.
• While France and Germany delivering mixed results, output fell at a slower pace in the rest of the euro area, supported by the manufacturing sector.

Looking at the sub-components,

• New orders fell for the sixth straight month, though at the slowest pace of decline since August.
• The pace of job creation slowed, while factories reported an improvement in delivery times, the first since January 2020.
• Manufacturers saw a marked cooling of input cost inflation, the weakest since December 2020.
• Prices charged for goods and services continued to rise but at a slower pace.

EUR/USD Price Action

Ahead of today’s PMI numbers, the EUR fell to an early low of $1.06229 before rising to a high of $1.06633.

However, in response to the private sector numbers, the EUR/USD fell to a post-French PMI low of $1.06308 before steadying. The German PMIs supported a EUR/USD recovery.

At the time of writing, the EUR was up 0.13% to $1.06407.

Up Next

Finalized November inflation for Italy and the Eurozone and euro area trade data are also due this morning. However, barring revisions from prelim numbers and a worse-than-forecasted trade deficit, the stats will likely play second fiddle to the private sector numbers.

From the US, prelim December private sector PMIs will likely have more influence. Following the weak retail sales figures on Thursday, a deeper contraction in the services sector would cause more of a stir over the US economic outlook.

With the FOMC blackout period over, FOMC member chatter will also need monitoring.