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According to the latest HCOB flash PMIs, ‘Germany’s private sector economy slipped back into contraction at the start of the third quarter, weighed down by a worsening performance across the country’s manufacturing sector…there was also a further weakening of the labour market amid a broad-based decrease in employment.’
Commenting on the data, Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank (HCOB), said: ‘This looks like a serious problem. Germany’s economy fell back into contraction territory, dragged down by a steep and dramatic fall in manufacturing output. The hope that this sector could benefit from a better global economic climate is vanishing into thin air. With the composite PMI now below 50, our GDP Nowcast predicts that economic output will shrink by 0.4% in the third quarter compared to the second quarter. While it is still early days and many data points are yet to come, the second half of the year is starting on a very weak note.’
HCOB Flash German PMI Report
ECB rate cut expectations moved higher after the data release, with expectations for a September rate cut increasing to just over 65%. If there is no move in September, then a cut at the October 17 meeting is fully priced in. Financial markets are also suggesting another 25 basis point cut at the December meeting.
ECB Interest Rate Probabilities
EUR/USD is slipping lower and is heading towards a cluster of simple moving averages sitting between 1.0812 and 1.0833, and these will need to hold to protect 1.0800. Below here, a group of recent lows around 1.0668 comes into view. As things stand, it looks unlikely that EUR/USD will test 1.0900 or above in the short term.
