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Tim Riddell, analyst at Westpac, notes that dismal Eurozone PMIs were affirmed with weakness notable across national PMIs in addition to the slump in Germany.

Key Quotes

“Germany’s leading Economic Research Institutes have now jointly lowered growth forecasts to 0.5%y/y for 2019 (from +0.8% in their spring report) indicating a technical recession for mid-2019. 2020 growth was also lowered to 1.1%y/y (from 1.8%). They see the risk of a disorderly Brexit as impacting German growth by -0.4% and so the outlook could deteriorate further.”

“However, Germany’s Finance Ministry remains opposed to fiscal loosening despite the economy slipping into recession and in the face of pleas for fiscal support from departing ECB President Draghi.”

“The German Institute warn that it is only the consumer that is holding the economy from a cross sector depression. If next week’s retail and factory order data weaken further pressure for fiscal support may prove too great to ignore.”

“Although economic prospects in the US are also being marked lower and yield spreads are turning less EUR/USD-negative, the pair is still struggling. Pressure persists to define a lower trading range, potentially 1.07-1.11.”