Eurozone PMI Poised To Contract

FXStreet is reporting Euro-Zone PMI Show Further Weakness In May.

Activity in the euro-zone economy dropped to its weakest level in nearly five years in May, with the services sector leading the decline.

According to sources Friday, the preliminary estimate of the Purchasing Managers Index for the euro zone's services sector fell to 50.6 in May from 52.0 in April. The reading fell far short of market expectations, and hasn't been lower for four and a half years.

Manufacturing sector activity also slowed in May, registering a reading of 50.5, down from 50.7 in April.

The euro-zone PMIs are based on data from Germany, France, Italy, Spain, Ireland, Austria, Greece and the Netherlands. It's compiled by NTC Economics.

The PMI is a diffusion index. Anything under 50 is contraction. The PMI appears poised to contract in the next month or two led by services. My belief is the EU is headed for recession, following the US with a lag.

UK mortgage and credit card delinquencies rising

Just as is happening in the US, UK mortgage and credit card delinquencies are rising.

Delinquencies on prime and non-conforming UK mortgages and on credit cards are rising as lending conditions tighten and the economy weakens, Standard & Poor's said in reports on bonds backed by these assets.

For non-conforming mortgages -- those to borrowers with poorer credit histories -- delinquencies rose to 21.73 percent in the first quarter, from 19.41 percent in the fourth quarter of 2007, S&P said on Thursday.

Delinquencies of more than 90 days moved into double digits, at 10.6 percent.

"A reduction in refinancing opportunities for borrowers, the large proportion of loans (approximately 25 percent) due to revert from fixed or discount rates in the first half of 2008 into an environment of reduced credit availability, and the slowing economy are likely to keep delinquency figures high for the foreseeable future," S&P analyst Kate Livesey said.

Economic conditions are deteriorating in the US and Europe. It will be interesting to see how stubborn Trichet remains when it is impossible for central bankers anywhere to control oil prices via interest rate policy without totally wrecking the economy. However, as long as Trichet holds pat, the Euro may have a decent bid vs. the US dollar.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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