May Flash PMI: Composite Reading Reaches 12-month High

In contrast to France, the German May flash services PMI was stronger-than-expected at 53.9 (vs 53.5 cons, 53.2 prior). Manufacturing was also strong at 45.4 (vs 43.5 cons, 42.5 prior). The composite PMI reached 52.2 (vs 51.0 cons, 50.6 prior), a 12-month high. Bund futures have now pared most of the initial French PMI-inspired gains.

Overall, the report showed improvements in activity and declining output charge price pressures, an optimistic combination in the eyes of the ECB.

Key notes from the release:

• "Growth continued to be driven by the service sector, which saw business activity rise for the third month running"..."The drag from the manufacturing sector meanwhile eased notably mid-way through the second quarter"
• "Growth was led by a solid and accelerated increase in new work across the service sector, which was partly buoyed by a first – albeit marginal – rise in new business from abroad for 12 months"
• "May’s increase in employment, which was broadly in line with the historical series average, owed exclusively to the service sector, with manufacturing workforce numbers declining at a solid rate that was little-changed from the previous month"
• "Business expectations towards activity in the year ahead improved considerably in May"
• "Average output prices rose at a modest rate that was the slowest rate for over three years and below the long-run trend. There remained a dichotomy between rising service sector output prices and falling factory gate charges"
• "Trends in output prices mirrored those of underling costs, with operating expenses in the services sector rising at the softest rate for three years (although still strongly by pre-pandemic standards) and manufacturers facing a further drop in purchase prices".