Weaker-than-expected July Flash PMI Helps Bunds To Intraday Highs

The German July flash PMI was weaker than expected across both services and manufacturing, helping Bund futures push towards new intraday highs and retrace the sell-off seen following the French data, and weighing on the EUR in tandem.

The manufacturing sector has been in contractionary territory since June 2022, printing at 42.6 in July (vs 44.0 cons, 43.5 prior). Services meanwhile registered its 5th consecutive month in expansion at 52.0 (vs 53.3 cons, 53.1 prior). The price paid/charged components suggest firms struggled to pass-on cost increases to end consumers.

Key notes from the release:

• “The return to contraction reflected a combination of a deeper decline in manufacturing production and slower growth of services business activity”
• “With firms completing orders at a faster rate than they received them, staffing capacity was scaled back for the second month in a row. The decline in employment continued to be led by the manufacturing sector… but July also saw services firms…. [cut] staffing levels”.
• “Operating expenses in the service sector increased at a slightly quicker pace, while the drag from falling manufacturing purchasing costs eased”…”Nevertheless, the overall rate of cost inflation remained just below its long-run average”.
• “Unlike costs, the rate of inflation ticked down since June, reflecting the slowest rise in service sector output prices for more than three years”.