German manufacturing PMI missed its mark printing at 45.7 versus 47.4 and sending EURUSD lower in early morning European trade as fears about a contraction in Eurozone’s largest economy offset earlier optimism over better Chinese PMI data. German services PMI also declined dropping below the key 50 boom/bust level as it printed at 49.7.

This was the first negative surprise in manufacturing readings in three months and the worst result since May when the PMI data stood at 45. The news clearly shows that German economic activity has slowed and is now in contractionary mode threatening drag the EZ-wide GDP into negative territory into the close of the year.

The market will now look to the EZ PMI and the IFO report to gauge the sentiment of the business sector as it tries to ascertain if today’s data was merely the result of spillover effects from the spike in sovereign debt yields at the end of the summer that cast a pall on credit conditions Europe wide or a deeper signal of stagnating demand.