Political turmoil and escalating trade tensions increase economic pressure! Eurozone's November PMI unexpectedly shrinks, and the euro falls to a two-year low

According to the Zhitong Finance APP, business activity in the Eurozone unexpectedly contracted in November, indicating damage caused by political turmoil and escalating trade disputes. Data released on Friday showed that the Eurozone's November SPGI Composite PMI preliminary value fell to 48.1, dropping below the neutral line of 50, lower than the market expectation of 50 and the previous value of 50.

Analysts were surprised by the sharp deterioration in the services sector. The data showed that the Eurozone's November SPGI Services PMI preliminary value fell to 49.2, below the market expectation of 52 and the previous value of 52. Meanwhile, the Eurozone's November SPGI Manufacturing PMI preliminary value further declined to 45.2, below the market expectation of 46 and the previous value of 46.

After the data was released, the euro fell more than 1% against the dollar, reaching its lowest level since 2022. Traders expect the European Central Bank to further cut interest rates, with the likelihood of a 50 basis point cut next month rising from about 15% at Thursday's close to around 50% now.

Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, stated in a statement: "The situation cannot get any worse. The Eurozone manufacturing sector is sinking deeper into recession, and the services sector, after experiencing slight growth for two months, is now also starting to struggle."

The European economy has already been hit by political turmoil in Germany, fiscal difficulties in France, and potential trade tariffs following Donald Trump's election as U.S. president. The latest data has intensified concerns about the economic outlook for Europe. Cyrus de la Rubia noted, "It seems that an economic recovery will not come soon, as the decline in new orders and backlogs is even faster than in October." He emphasized that despite cooling inflation and rising wages, consumption remains disappointing.

The Eurozone's third-quarter GDP exceeded expectations, largely leading investors to reduce bets on further interest rate cuts by the European Central Bank. However, the latest data is reviving those bets. As early as September, unexpectedly weak PMI data was a key reason for the European Central Bank to accelerate easing actions, although that data was later significantly revised upward.

ING stated in a client report: "The problem is how seriously people take this signal." "But don't get me wrong, the underlying message is consistent with a significant slowdown in GDP growth. We expect stagnation in the economy in the fourth quarter."

David Powell, a senior economist for the Eurozone, stated: "The November PMI data for the Eurozone is disappointing. This deterioration is a result of the emotional effect of Trump's election victory, as the Eurozone is vulnerable to the tariffs threatened by Trump. This reinforces the rationale for the European Central Bank to continue cutting rates in the new year and increases the likelihood of a rate cut in December." Yannis Stournaras, a member of the European Central Bank's Governing Council, stated that the European Central Bank should lower the deposit facility rate at every meeting until it reaches 2% (currently at 3.4%). He mentioned on Thursday that a 25 basis point rate cut at the December meeting would be the "right response" and did not rule out larger measures.

Dovish European Central Bank officials, represented by Yannis Stournaras, are concerned that economic weakness may lead to inflation falling below the 2% target. However, some European Central Bank officials remain cautious about persistent price pressures, particularly in the services sector. According to S&P Global data, input and output prices in the Eurozone rose faster in November, driven by service costs. Cyrus de la Rubia pointed out that this is "a major headache for the European Central Bank."