France's June services PMI at 47.4 beat consensus. Employment stabilised; new orders contracted for 7th month. The ECB gets more room to cut, though oil uncertainty complicates the outlook.
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France's June flash services purchasing managers index hit 47.4, topping the 46.0 consensus. The reading, compiled by S&P Global and HCOB, still sits below the 50 mark that separates growth from contraction. That puts the eurozone's second-largest economy on track for a second straight quarter of shrinking output.
Some pockets of improvement showed through. Employment stabilised during the month, and business confidence ticked higher for the first time since January. Cost pressures also eased. Those are tentative green shoots in an otherwise soft picture.
The survey recorded a seventh consecutive monthly decline in new order inflows. Demand remains weak across the services sector, a trend that has dragged on activity all quarter.
Price pressures offered a more complicated read. The PMI's pricing measures softened, helped by the drop in global oil prices over the past month. The survey's accompanying commentary said the softer readings could signal that peak inflation is behind us and the disinflationary process is underway. It cautioned that uncertainty surrounding ship transits through the Strait of Hormuz makes it too soon to draw that conclusion.
For the European Central Bank, the French services data adds weight to the case for rate cuts. The eurozone has struggled to generate growth, and another quarter of contraction in France would drag on the entire bloc. Lower inflation in services would give the ECB room to ease. The risk of oil price spikes complicates that outlook.
The euro slipped after the release. Traders weighed the contraction signal against the modest beat. The single currency edged lower to around $1.0900. The EUR/USD profile shows rate differentials continue to favour the dollar. A widening of the US-EU rate gap could keep pressure on the pair.
Attention now turns to the German and eurozone flash PMIs due later this week. Those prints will confirm whether the French stumble is isolated or part of a broader regional weakness. The final June PMI readings arrive in early July. Until then, the flash data leaves the ECB's calculus unchanged. A September cut remains possible, though much depends on whether manufacturing follows services into deeper contraction.
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