Business activity shrinks in the Eurozone: Euro falls to a 2-year low!
Business activity in the eurozone unexpectedly contracted in November, driven by a sharp deterioration in the services sector. The Flash Eurozone Purchasing Managers' Index (PMI) fell to 48.1 from a neutral 50.0 recorded in October. That marked the biggest contraction since January and was below market expectations for an unchanged reading.
The services sector, a key driver of the eurozone economy, contracted for the first time in 10 months, with its PMI falling to 49.2 from 51.6 in October. Manufacturing continued its prolonged decline, with the PMI falling further to 45.2, marking 20 consecutive months of manufacturing declines.
Firms across the region struggled with a drop in new orders, which fell for a sixth straight month and at their fastest pace this year. Export orders have also suffered a significant drop, worsening the pressure on businesses. Weak confidence led some firms to cut back on hiring, with workforce numbers falling marginally.
Despite the slowdown in business activity, inflationary pressures reappeared. Input cost inflation rose to a three-month high, driven by a sharp rise in utility input prices, although output costs fell. Producer prices also accelerated compared to October, presenting a dilemma for the European Central Bank (ECB).
Germany and France, the eurozone's largest economies, recorded sharper contractions in November. France saw its services PMI sink to 45.7 from 49.2 in October, marking its worst performance since January. Similarly, Germany's Services PMI entered contraction for the first time in 9 months, falling to 49.4 from 51.6 in October, defying market forecasts of 51.6.
In November, service provider activity took a hit for the first time since February. Companies are also facing rising costs, especially wages.
The sudden contraction in eurozone business activity in November sent ripples through financial markets. The euro fell more than 1% against the dollar to trade at $1.04, the lowest level since November 2022, as investors gauged expectations of accelerated ECB rate cuts.
Eurozone bond yields fell across the board. Germany's 10-year Bund yield fell eight basis points to 2.25%, while Italy's BTP yield fell five basis points to 3.50%, and France's OAT yield fell seven basis points to 3.04%.
Shares also fell, with the Euro STOXX 50 index losing 0.7%. Italy's FTSE MIB fell 1%, France's CAC 40 fell 0.8%, and Germany's DAX and Spain's IBEX 35 both fell 0.5%.
The banking sector bore the brunt of losses, with shares in Intesa Sanpaolo, Unicredit, Societe Generale, BNP Paribas, Deutsche Bank and Banco Santander falling between 2.5% and 4%. In contrast, companies such as Iberdrola, RWE and E.ON gained 1% to 2.5%, reflecting investors' preference for defensive sectors.
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