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 Beijing's targeted stimulus measures and Japan's improving labor
market supported domestic demand in Asia's dominant economies but
the gap between the common currency area's big two remains wide.
Germany and France went their separate ways again, with German
business activity expanding robustly, albeit at a slower pace than
last month, while France's private sector shrank at the fastest rate
in four months.
"The recovery has not gained as much traction as people had hoped.
We've been highlighting the divergence between France and Germany
for some time - it's not just in the PMIs. It's definitely a
concern," said Jessica Hinds at Capital Economics.
Markit's Composite Purchasing Managers' Index (PMI), based on
surveys of thousands of companies across the 18 countries that use
the euro and seen as a good indicator of growth, fell to 52.8 from
May's 53.5. That was well below the consensus for 53.5 in a Reuters
survey, matching the lowest forecast polled.
Readings above 50 indicate expansion. Markit said that with a robust
recovery taking place in some euro zone periphery countries, the
data still point to second-quarter economic growth of 0.4 percent.
Germany, Europe's largest economy, was again the driving force
although its composite PMI eased to 54.2 from 55.6.
But the French index slumped to 48.0 from 49.3, its lowest reading
since February.
"Déjà vu with the French numbers: worse than expected. Our own and
the Banque de France's forecast of GDP expanding by 0.2 percent in
Q2 looks optimistic now," said Holger Sandte at Nordea.
Also somewhat worryingly for the European Central Bank, a composite
PMI sub-index measuring output prices held below the 50 mark for the
27th month, coming in at 49.7 as firms kept cutting prices despite
soaring input costs.
Inflation slowed to just 0.5 percent in May, prompting the ECB to
cut interest rates to record lows and offer new long-term loans to
banks to help boost lending to euro zone companies.
"The further weakening of the PMI vindicates the ECB's recent
decision to implement further monetary easing and will keep fears of
a Japanification of Europe firmly alive," said Martin van Vliet at
ING.
European stocks fell after the euro zone data in contrast with the
upbeat numbers from China that earlier lifted Asian shares and the
Australian dollar.
STIMULATING DEBATE
The stakes are high for China, which may need more stimulus to
offset a cooling housing market and avoid a hard landing. Japan's
weak exports also take the gloss off the government's efforts to
breathe new life into its economic reform agenda.
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The HSBC/Markit Flash China Manufacturing PMI rose more than
expected to 50.8 in June from May's final reading of 49.4, beating a
Reuters poll forecast of 49.7 and creeping above the 50-point level.
It was the first time since December that the PMI was in growth
territory, and the highest reading since November, when it was also
50.8.
"The country's factory sector gained momentum again and offering new
signs that overall economic growth is at least stabilizing thanks to
the government's efforts to shore up growth," said Nikolaus Keis at
UniCredit.
China's government has unveiled a series of modest policy measures
in recent months to give a lift to economic growth, which dipped to
an 18-month low in the first quarter. These include targeted reserve
requirement cuts for some banks to encourage more lending, quicker
fiscal spending and hastening construction of railways and public
housing projects.
The Markit/JMMA flash Japan Manufacturing PMI rose to a seasonally
adjusted 51.1 in June from a final reading of 49.9 in May, showing
the first growth in three months.
Japan's new orders index jumped to 52.0 from 49.6, indicating
consumers are shrugging off an increase in the nationwide sales tax
on April 1 as strong demand for workers puts upward pressure on
wages.
External demand, however, remained weak for the two export
powerhouses in a worrying sign that the United States and Europe may
not be recovering as strongly as anticipated, meaning it could be
difficult to rely on exports for growth.
A flash PMI due later on Monday from the United States is expected
to show a slight upturn from May.
(Editing by Catherine Evans)
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