In July, both euro zone manufacturing and services PMI showed a further easing in sentiment, signalling a near-stagnation of growth. According to the first estimate, the euro zone manufacturing PMI dropped from 52.0 to 50.4 hitting the lowest level since September 2009, while the consensus was looking for a more moderate decline (to 51.5). This is already the third consecutive month that manufacturing PMI surprised on the downside, suggesting that investors are still underestimating the pace of slowdown. The details confirm the weakness suggested by the headline figure as output declined for the first time in two years and new orders fell for a second month running and at a faster rate. The available national data show that both German (52.1 from 54.6) and French (50.1 from 52.5) manufacturing PMI surprised on the downside of expectations. In July, euro zone services PMI fell from 53.7 to 51.4, based on 85% of usual monthly replies, while the consensus was looking for only a marginal decline. The breakdown shows that orders grew at the weakest pace since November 2009. The composite PMI plunged from 53.3 to 50.8, signalling a broadbased slowdown in growth, to near-stabilization levels. The only encouraging news in the data was that employment held up well and price pressures eased further during the month. The PMI’s are really disappointing showing that the periphery is slipping deeper into contraction territory, while in the core EMU countries, growth is expanding at only very modest rates. Nevertheless, we hope to see some improvement in sentiment in August after the EU came up with a second bailout package for Greece yesterday.