The first estimate of both euro zone manufacturing and services PMI showed a significant weakening in business sentiment. In May, euro zone manufacturing PMI dropped from 58.0 to 54.8, the sharpest slowing since the Lehman collapse, while the consensus was looking for only a slight deterioration in sentiment. The details revealed a significant decline in both new orders (53.8 from 57.4) and output (55.3 from 60.2). German manufacturing PMI fell from 62.0 to 58.2 and the French one dropped from 57.5 to 55.0, indicating that the recovery in the core EMU countries is losing its strong momentum. Euro zone services PMI dropped from 56.7 to 55.4 in May, while only a marginal decline to 56.5 was expected. Business expectations fell from 66.1 to 63.9 in May, the lowest level since July 2009. While French services PMI weakened only marginally (62.8 from 62.9), the German reading was worse, falling from 56.8 to 54.9. Positive news, on the contrary, came from the inflation front, as the pace of price growth slowed in May. Euro zone composite PMI fell from 57.8 to 55.4, with a softer decline in the employment index (52.7 from 53.1). The PMI’s indicate that the euro zone recovery is losing some of its power, confirming expectations that the euro area has reached its peak in the first quarter. The German growth engine has lost some of its power, probably due to weaker demand from abroad. We are waiting to see the details of the non-core countries to see whether the slowdown in the core has additional negative impact on the peripheral countries.