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EURO (EUR/USD) WEAKENS AFTER GERMAN PMIS DISAPPOINT, RATE CUT EXPECTATIONS RISE
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.