Collapse in investor sentiment highlights that Germany is teetering towards a recession
The ZEW survey for August bodes ill for the German economic outlook
The bleak report earlier tells the story that investors have pretty much entirely lost confidence in the German economy amid ongoing global uncertainties, which look set to still continue towards the end of this year at the very least.
US-China trade tensions, a slowing global economy, and heightened risks of a no-deal Brexit are among factors weighing on Germany right now as economic conditions continue to deteriorate. A clear example of that is the trend in PMI data:
The free-fall in manufacturing (Germany's backbone) is particularly worrying and it is only but a matter of time before it spills over to the services sector as well. The composite reading is also moving towards the 50.0 level, indicating stagnant economic activity.
Tomorrow, we'll have the release of German Q2 preliminary GDP and the expectation is for the economy to contract by between 0.1% to 0.2% q/q.
Given economic data we have seen so far and survey sentiment, it's not exactly a big leap to imagine that Q3 economic growth may potentially be worse than Q2 for Germany given the global backdrop above.
As such, euro traders may be indifferent about the data this week but expect fears of a technical recession to potentially hint at a near-term downside for the single currency once markets decide to focus on that in the coming weeks/months.