Euro-Area Services Work Their Way Higher

EMU lead by Germany- The EMU service sector is still on the rise but the rise is not on a particularly strong trajectory of expansion. After a set-back in February, Germany's services index is up strongly but still not back to its January reading. Still, Germany has posted its third highest reading since May 2000.

France - France's reading is 92% of its historic maximum and in raw terms is stronger than the German index. These two countries strength has helped to boost the EMU reading to its 25th highest reading since May 2000 and put it at the 92% of its historic peak, in the 80th percentile of its high-low range.

Trouble while the ECB tosses a pair of dice- Italy is having tough going with its services index barely showing expansion at 53.6 compared to neutral reading of 50. Italy's reading stands in the 61 percentile of tit's high- low. Spain and Ireland each saw their service sectors weaken in March as Spain registered below the expansion point. Spain is in the 62nd percentile of its range and Ireland in the 52nd percentile of its. But if we calculate their positions in a ranked queue of values over the same period Spain and Ireland are in the 22nd and 29th percentiles of those queues, respectively. They may be close to their range mid-points but they stand low in the queue of actual values for the services sector. In other words both are stronger than these values some 70% of the time or more…This not surprising given the economic difficulties in each of these nations.

UK surges- In contrast the UK, an EU-only member country, saw its services reading spurt to 57.11 from 52.6 landing it in the 83rd percentile of its historic range and the 73rd percentile by queue. After showing some weakening economic reports recently the surge in the UK services sector is a most unexpected and welcome surprise.

And the policy move will be to...The services PMIs in EMU continue to fight their way higher for the most part. Italy is struggling and Ireland and Spain were set back. There is also a lot variation in performance within the zone for services. It's hard to see how the ECB will justify hiking interest rates when faced with EMU aggregate readings that are not overheating and so many countries whose indices are still floundering or decaying. Yet, that is exactly what Trichet seems poised to do.