Eurozone business activity continued to expand in May and by the most in a year. The final composite output index weighed in at 52.2, a tick short of its flash estimate, but up 0.5 points versus its final April mark and so further above the 50-expansion threshold.

The flash services sector PMI was similarly revised just 0.1 point lower and, at 53.2, was also a tick below its final April outturn. As shown in the preliminary survey, new orders advanced for a second successive month and at the fastest rate in a year. Backlogs were broadly flat, but job creation was the strongest since last June. Expectations for the year ahead also turned up and hit their highest level since February 2022. Price pressures remained elevated, but the rate of input cost and output price inflation still eased to the slowest in three years and seven months respectively.

In terms of national PMIs, the best performing member state was Spain (56.6) which, alongside Germany (52.4) and Italy (54.2), posted above the 50-mark. However, France (48.9) dipped back into contraction territory.

The final May results suggest that the Eurozone economy is picking up some momentum and bode cautiously for second quarter GDP growth. Inflation pressures have not gone away but at least seen to be moving in the right direction. There is nothing here to stop the ECB cutting interest rates tomorrow. Indeed, the final May report puts the Eurozone RPI at exactly zero indicating overall economic activity evolving as expected. That said, at minus 14, the RPI-P shows modest underperformance by the real economy.

The key composite output index is expected to be unrevised at 52.3, up from April's final 51.7.

The Composite Purchasing Managers' Index (PMI) provides an estimate of private sector output for the preceding month by combining information obtained from surveys of the manufacturing and service sectors of the economy. Results are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) output versus the previous month and the closer to 100 (zero) the faster is output growing (contracting). The report also contains the final estimate of the services PMI. The data are provided by S&P Global using a representative sample of around 5,000 manufacturing and services companies, the former including Germany, France, Italy, Spain, the Netherlands, Austria, the Republic of Ireland and Greece and the latter Germany, France, Italy, Spain and the Republic of Ireland.

Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the purchasing managers' manufacturing indexes, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.