Germany April flash manufacturing PMI 42.2 vs 42.8 expected

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• Prior 41.9
• Services PMI 53.3 vs 50.5 expected
• Prior 50.1
• Composite PMI 50.5 vs 48.5 expected
• Prior 47.7

That’s a big beat on the services reading and it drags the German economy into expansion territory on the month. The euro has shot higher on this, with EUR/USD moving up from 1.0665 to 1.0695 at the moment. If anything else, this at least gives the ECB some room to work with if they decide not to move in June instead. HCOB notes that:

“Is the recession over? This is the obvious question which arises as the German Composite PMI has surpassed 50 in April
for the first time since mid-last year. The answer is not straightforward. For starters, it appears that the recession was
predominantly concentrated within the manufacturing sector, while the broader economy may have narrowly skirted such a
downturn. Secondly, the headline PMI index for manufacturing fails to indicate any significant change in this regard, although
output is contracting at a somewhat gentler pace. Lastly, and perhaps most crucially, the services sector is commencing the
second quarter on a strong footing. Factoring in the PMI numbers into our GDP Nowcast, we estimate that GDP may expand
by 0.2% in the second quarter, following an estimated 0.1% growth in the first quarter, both in comparison to the preceding
three-month period.

“The service sector may serve as a catalyst for the overall economy. Comprising approximately two-thirds of the economy,
services companies send out clear indications of a more sustained recovery. In addition to the accelerated growth in
services activity, there are encouraging signs in the more forward-looking aspect of outstanding business, which has shifted
into expansionary territory. Furthermore, the accelerated pace of hiring by companies compared to March is a further
indication of optimism.

“Services companies show a good amount of self-confidence. This is reflected in their pricing strategies, among other
factors. It indicates their belief that they can pass on the recent increase in input prices to customers to a greater extent than
previously. This stands in contrast to companies in the manufacturing sector, where sales prices remain under pressure. On
the input side, some companies are evidently grappling with the impact of higher oil prices. However, the overall downward
trend in manufacturing input prices that has persisted since the beginning of 2023 remains intact.

“In the manufacturing sector, there are a few good signs, but more bad ones. Production in April experienced a less
pronounced decline compared to March and we’re seeing a bit more optimism with respect to future output. However, the
steeper drop in incoming orders, the sharpest in the past five months, is less encouraging. Additionally, quicker delivery
times serve as further evidence of weakening demand. In this context, there are still no indications that the tentative
turnaround observed in the global inventory cycle has reached Germany.”