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HCOB Flash Manufacturing PMI for Eurozone (May 2023):

• Fell to 44.6, indicating the sharpest contraction in the factory sector in three years.
• Output, new orders, and backlogs of orders declined at a faster pace.
• Employment rose slightly, while input prices saw the largest fall since February 2016.
• Manufacturers reduced input buying at the fastest rate in three years, resulting in a significant decline in inventories.
• Optimism about the future weakened, reflecting concerns.
   

HCOB Flash Eurozone Services PMI (May 2023):

• Edged lower to 55.9, but still indicated strong growth in the services sector.
• New orders increased for the fifth consecutive month.
• Backlogs of orders saw modest growth, and jobs growth was the second-strongest in the past year.
• Average prices for services remained elevated due to wage and salary costs.
• Optimism about the future declined further.
   

Notable in Germany:

• Manufacturing decline was particularly pronounced, with a reading of 42.9 compared to 44.5 in the previous month.

3 Weeks Ago

The manufacturing sector is facing potential contraction due to prior elevated producer price pressures and interest rates. In contrast, the service sector appears resilient and continues to show signs of expansion. The manufacturing contraction could contribute to renewed price pressures, placing pressure on equity sectors such as the German DAX or Euro STOXX 600. Stronger production data would be supportive in combating inflation and driving demand for equities.

Given the current mixed data points, the market seems to favor a balanced price auction, prompting traders to rely on extreme levels to determine rotational scenarios. The higher interest rates are exerting pressure on production, resulting in the contracted data. This market pullback follows a recent rally that emerged from a balanced price range observed over several days.

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