The French January flash PMIs remained in contractionary territory to start 2024. Manufacturing PMI beat expectations (43.2 vs 42.5 cons, 42.1 prior), but the Services miss (45.0 vs 46.0 cons, 45.7 prior) prompted an initial leg up in Bund and OAT futures. Wage pressures were once again highlighted as an upside driver of input costs amongst service firms.

Key notes from the release:

• "Overall input costs rose at a sharper pace, reflecting a steeper rise in services companies’ operating expenses. Salaries, energy and certain raw materials were cited as sources of inflation".
• This was reflected in a rise in output charge inflation, led by services providers.
• "Less pressure on operating capacities contributed to a third successive month of falling employment levels across France", though this was driven exclusively by manufacturers.
• "Uncertainty towards the outlook, as well as general weakness across the economy were reasons given for the drop in new order inflows in January".
• "Factory production decreased at the fastest pace in over three-and-a-half years. Meanwhile, services business activity fell to the greatest degree since last September".
• "Expectations of prolonged weakness in demand, leading market conditions to worsen in multiple parts of the economy, kept business sentiment at a subdued level, according to anecdotal evidence".