Headlines:

• Germany July flash manufacturing PMI 49.2 vs 50.6 expected
• France July flash services PMI 52.1 vs 52.7 expected
• Eurozone July flash services PMI 50.6 vs 52.0 expected
• Euro sinks as German PMI data points to contraction in activity
• Bond yields slide as euro area PMI data sounds recession alarm bells
• 10-year German bund yields fall to seven-week lows
• ECB’s de Cos: We will see about September, we are data dependent
• ECB’s Kažimír: It is possible to expect 25 or 50 bps rate hike in September
• ECB’s Villeroy: Frontloading rate hikes does not mean terminal rate will be higher
• UK July flash services PMI 53.3 vs 53.0 expected
• UK June retail sales -0.1% vs -0.3% m/m expected

Markets:

• JPY leads, EUR lags on the day
• European equities higher; S&P 500 futures down 0.2%
• US 10-year yields down 10.7 bps to 2.801%
• Gold up 0.5% to $1,727.63
• WTI crude down 1.6% to $94.79
• Bitcoin up 1.9% to $23,558

Just a day after the ECB decided to raise rates, leading indicators in Europe started to flash recession signals with the PMI data suggesting that the Eurozone economy contracted in the month of July. Soaring prices and energy costs are to blame as demand conditions deteriorated. The worst part? Things look set to intensify in the months ahead with a gas crisis looming.

The euro tumbled on the headlines with EUR/USD falling from 1.0200 to 1.0130 before finding some footing to stick around 1.0150-60 levels, though still down 0.6% on the day currently.

The dollar caught a bid as risk sentiment also retreated slightly before some pushing and pulling is leaving the greenback more mixed now. GBP/USD also fell from 1.1985 to 1.1915 but the lows held at the 200-hour moving average once again.

Meanwhile, AUD/USD dropped from 0.6920 to 0.6895 before pulling itself up to 0.6940 at the moment, with European stocks recovering after the earlier drop on the PMI data.

However, bond yields sank hard with 10-year German bund yields dropping by nearly 19 bps to 1.03% – its lowest in seven weeks – while 10-year Treasury yields are also seen down by nearly 11 bps to 2.80% on the day.

That weighed on USD/JPY as the pair fell from 137.60 to 136.90 now as we look towards US trading.

This article was written by Justin Low at www.forexlive.com.

The bid in bonds is continuing to flow and that is seeing 10-year German bund yields fall to its lowest since 31 May. It is down by roughly 19 bps on the day to 1.03% in a second day of big inflows into the bond market.

Elsewhere, 10-year Treasury yields are also down by over 11 bps now to 2.794% – the lowest in over two weeks. The drop in yields today is lighting a bid in the yen now with USD/JPY falling to the lows for the day near 137.00 after having held around 137.50-60 levels at the start of European morning trade.

This article was written by Justin Low at www.forexlive.com.

• 90% of gas price difference in sourcing from alternatives will be passed on to consumers
• We cannot stop the effects of higher prices from breaking through
• Uniper rescue is important because no company would not have been affected
• It is remarkable that Russia is not keeping to commitment on gas deliveries

Well, if you poke the bear, you best be ready for when it bites back. In any case, the headline remark just means more pain coming to consumers in having to already deal with rising costs on a daily basis.

This article was written by Justin Low at www.forexlive.com.

The Bundesbank is out with its monthly report, noting that the economy is likely to have grown less than anticipated in Q3 and may face a new inflation spike come September as government subsidies expire. Adding that the energy crisis is marring the outlook and makes for a very distressing economic situation.

For some context, German government subsidies on fuel and rail tickets are set to expire on 31 August.

The German central bank says that „the future development of the energy market is very uncertain, especially with regard to natural gas deliveries from Russia“ and that „the risks for the price outlook are clearly pointing upwards“.

This article was written by Justin Low at www.forexlive.com.

• The data convinced me to start rate hike cycle with a bang
• Rate hike is the beginning of a series of similar steps to tame inflation
• It will take a while to get inflation to desired levels

So, now 25 bps is back in play for September? What is going on..

The minute forward guidance goes out the window, everything is just turning into a massive mess right now. And just a day after starting their rate hike cycle, we are already seeing fresh recession indicators from the PMI data today. It goes to show how the ECB has really dropped the ball on this one.

This article was written by Justin Low at www.forexlive.com.