Ana Racionero (Intermoney )| In Europe, the PMIs showed the bill that is being paid for the ECB’s rate hikes. The downturn was of great magnitude and, what is worse, anticipates recession in the eurozone, specifically, a contraction of around -0.2%/-0.3% in the third quarter, after having grown by 0.3% in the previous quarter.
Although France’s manufacturing rose in August from 45.1 in July to 46.4, when a decline to 45.0 was expected, services fell to 46.7 from 47.1, instead of rising to 47.5. The composite repeated the previous 46.6, vs. 47.1 in the surveys. In Germany it was similar: manufacturing rose to 39.1 from 38.8, a level that was expected to be repeated. However, services slipped into contractionary territory at 47.3, from the previous 52.3 and when 51.5 was expected, the fastest pace since the first wave of COVID.
Finally, the eurozone also had a better performance in the manufacturing sector, with a rise to 43.7 from 42.7 vs 42.7, a sharp decline in services to 48.3 from 50.9 vs 50.5, moving into contraction, and a decline in the composite to 47.0 from 48.6 vs 48.5, below all Bloomberg survey respondents’ estimates.
The consequence of such an unexpected “bump” was, naturally, a bond “rally” that pushed yields sharply lower, and a recalculation by the swaps markets, which reduced their bets from a 50% chance of a 25 bp hike by the ECB at its next meeting in September to less than 40%, pushing the euro sharply lower. What is dramatic about these figures, already dramatic in themselves, is that, until now, it was the services sector that had been supporting the economy in the face of a manufacturing sector in complete decline, which it seems to be starting to imitate.