Euro area services PMIs moderate in August, economic growth momentum appears firm

Euro area services PMIs moderated in August. The deterioration in the flash euro area services PMI in August to the lowest level since January was disappointing and contrasted with suggestions from other sentiment indices of an acceleration in the sector last month, noted Daiwa Capital Market Research. The flash estimate was downwardly revised a bit to 54.7, more than one-and-a-half points below the six-year highs reached in the second quarter to imply some loss of momentum.

Even if the German services PMI rose slightly from its flash estimate, the French index was downwardly revised to over one point below July’s level and the lowest since January. Furthermore, the respective Italian and Spanish indices also hinted at weakening conditions in the sector in those nations in August.

However, there appears no reason to be alarmed, stated Daiwa Capital Market Research. The Commission survey index had implied a rebound in the services sector in August and improved expectations of future demand. Moreover, the euro area services PMI was still one point above January’s level and above the range throughout 2016. Also, the national indices were similarly still in line with expansion of activity.

Furthermore, with the manufacturing PMI having risen close to June’s six-year high, the euro area composite PMI was revised upwardly a bit to 55.8. This implies ongoing stable GDP growth close to the 0.6 percent sequentially in the second quarter.

“With the PMIs also suggesting that the flow of new orders remains relatively elevated, they also indicate that GDP growth rates in the member states and the euro area as a whole should remain above-potential over the near term”, added Daiwa Capital Market Research.

At 19:00 GMT the FxWirePro's Hourly Strength Index of Euro was neutral at -25.095, while the FxWirePro's Hourly Strength Index of US Dollar was highly bearish at -179.083. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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