Services Re-Enter Contractionary Territory

Germany October flash PMI saw services re-enter into contractionary territory at 48.0, printing below expectations. Manufacturing was a touch above expectations but still remains close to multi-year lows at 40.7. Some key notes from the release are:

• "Overall inflows of new business posting the steepest decline since May 2020"…"services firms reported their worst sales performance for almost three-and-a-half years, which they attributed in part to client hesitancy and tighter financial conditions."
• "Easing business capacity pressures resulted in a broad-based reduction in employment", but there was a divergence between manufacturing and services with services job cuts only "slight" but manufacturing cuts "the fastest since October 2020".
• There was "cautious optimism in the service sector, where sentiment was at a four month high, contrasted with still deeply negative expectations among manufacturers".
• "Services firms reported another steep rise in operating expenses, which they linked to wages demands and inflation generally, purchasing costs faced by manufacturers continued to fall sharply", but input price inflation was dragged down by a slower rate of increase in service sector costs.
• Following the release, Bunds again saw a bid of around 2bps which has started to pare, while EURUSD posted an initial fall of around 0.1%.