European Data Shows Contraction

Markit reported the February composite euro-zone purchasing manager’s index (P.M.I.) came in at 49.7, the second highest it has been in six months although lower than January’s 50.4 average. The reduction suggested a slight contraction in business activity from January to February. Yet, the second six-month-high indicated that Europe’s economy is stabilizing in the beginning of 2012. Output had been greater in France and Germany (higher in January) while the rest of the region’s output lowered. January and February (2012) saw improvements compared to both months in 2011.

The service sector index came in at 49.4 also contracting from its 50.4 January figure. On the other hand, the manufacturing sector came in at 49.0 and resulted higher than its 48.8 index in January, and added a second consecutive month of increases.

New business lowered in the region making it the seventh straight month of reductions. Yet, the rate of decline eased for the fourth straight month marking it the smallest reduction in six months. Additionally, manufacturers had the least decline in demand for the past seven months followed by the decline in new export orders.

Despite this, reduced inflows of new business and lower backlogs of work caused companies to cut their employment numbers. Thus, the region experienced a decrease to employment for the second consecutive month. Yet, the average rate of job reductions fell to a four month low in February although it remained high.

Expectations for growth in the remainder of the year in the service sector improved although remaining historically low. Additionally, projections of manufacturing growth stayed lower than the survey’s historical average but held similar to January’s seven-month increase.

The contraction in the gauges put downward pressure on the Euro which traded sideways today in the European and U.S. session. With Greece out of the headlines, volatility has fallen in the pair and we expect the pair to trade in a range between 1.3200 and 1.3300. We expect the range to continue until we see further development out of Europe. 

Eugene Ross, Analyst

Admiral Markets

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