The Eurozone HCOB Services PMI for March came in at 50.2. This was above the forecast of 50.1.
A reading above 50.0 indicates expansion in services activity. The March result stayed just above that threshold.
Services Sector Returns To Expansion
The Eurozone services sector has ticked back into expansion for the first time in nine months with the March PMI reading of 50.2. This slight beat suggests the economic downturn may be bottoming out. For us, this means we should ease back on our most bearish bets and prepare for a shift in market sentiment.
Given this data, we see an opportunity in selling downside protection on equity indices like the Euro Stoxx 50. The market has been pricing in a worse outcome, so selling out-of-the-money put options for May expiries allows us to collect premium as recession fears recede slightly. Implied volatility on the index has already dipped to a three-month low of 14.2%, suggesting this view is gaining traction.
This report puts pressure on the European Central Bank to be less dovish. As we look at the interest rate futures market, expectations for rate cuts later this year might be too aggressive. We should consider positioning for a flatter yield curve, as the ECB might delay cuts now that the services economy shows signs of life, especially with core inflation still sticky at 2.9% as of last month.
For the euro, this is a supportive development. The currency found a floor against the dollar around the 1.08 level last week, and this data could provide the catalyst for a move higher. We can gain exposure by buying near-term EUR/USD call options, which offers a defined-risk way to play a potential relief rally.
Keep Positioning Measured
We must temper this optimism by remembering the broader picture. Looking back at the persistent weakness through all of 2025, this single data point isn’t a guarantee of a strong rebound. The composite PMI for March was still in contraction at 49.9 due to the ongoing weakness in manufacturing, so we should avoid overly aggressive bullish positions.
