Germany June flash manufacturing PMI 43.4 vs 46.4 expected

• Prior 45.4
• Services PMI 53.5 vs 54.4 expected
• Prior 54.2
• Composite PMI 50.6 vs 52.7 expected
• Prior 52.4

The euro has dipped to fresh lows on the day amid the softer-than-expected readings in France and now Germany. EUR/USD is down from 1.0705 earlier to 1.0675 on the day. Just take note of large option expiries here at 1.0650-60 that could help to contain the drop for now.

The readings above are all two-month lows but still points to a marginal expansion in the German economy for June. That said, an accelerated drop in manufacturing production, softening business optimism, and weaker labour market conditions are negative takeaways from the report today. HCOB notes that:

“What a sharp dip at the end of the second quarter. After showing some promising signs of bouncing back, the
manufacturing sector hit a wall and started moving in the opposite direction in June. The market consensus had assumed
that the headline manufacturing PMI would rise by one point to 46.4, but instead it fell by two points to 43.4. The production
slump is pretty sobering, but what’s even more concerning is that new orders are plummeting at a much faster rate. Last
month’s numbers were already troubling, but June’s figures paint an even grimmer picture. The HCOB Composite Output
Index is mainly dragged down by manufacturing production. If you use the composite index for a simple regression to
estimate GDP in the second quarter, you now get a marginal decline in economic output instead of our prior estimate of
slight growth.

“It’s an uphill struggle. All indicators point to the fact that demand for industrial goods is not getting off the ground, despite an
improved global environment. It’s not just the significant reduction in incoming orders from both home and abroad that’s
concerning. On top of that, the persistent decrease in inventories, a trend observed since early 2023, continues unabated.
Over the last three months, businesses have been clearing out their stocks of finished goods at an increasingly fast rate.
This seems to be a clear indication that the demand recovery is taking a hit.

“Fortunately, Germany’s economic performance is not only based on the manufacturing industry, but also on the service
sector. The latter continues to be in good shape. Although momentum slowed slightly in June, the sector is not lacking in
self-confidence, which is reflected in the fact that companies raised their sales prices more sharply in June than in the
previous month. Service providers cannot complain about a lack of new orders either and export business is also picking up
a bit.

“The ECB’s persistent headache these days is inflation in the service sector. The HCOB PMI data from Germany offers little
reason to reduce these concerns. Services input prices, in which labour costs play an important role, have risen almost as
much as in May and sales prices are even showing a stronger increase than in the previous month. According to official
statistics, wages and salaries rose by 6.3% in the first quarter in Germany, and we’ve seen a continued impact on operating
expenses from labour costs in the second quarter. This should be a further reason for the ECB to proceed cautiously with
interest rate cuts.”

This article was written by Justin Low at www.forexlive.com.