07 September 2022
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Germany factory orders decline

By Daniel Richards

  • German factory orders declined for a sixth month running at -1.1% m/m in July, compared with a -0.3% contraction in June and missing than the consensus projection of -0.7%. While orders from outside the Eurozone rose 6.5%, domestic orders declined -4.5% and orders from within the single currency bloc fell -6.4%. This will raise the likelihood of a recession in both Germany and the Eurozone, especially given the escalating energy crisis following the indefinite closure of the Nordstream 1 pipeline this week and already high inflation – price growth in the Netherlands hit 13.7% y/y on the EU harmonized measure in August, in data released yesterday.
  • New UK Prime Minister Liz Truss took office yesterday after meeting with the Queen in the afternoon. She has announced her new cabinet which largely consists of supporters of her bid to be leader of the Conservative Party. Kwasi Kwarteng, an ideological running mate supportive of her aim to invigorate growth through slashing taxes, has been named Chancellor of the Exchequer in a widely anticipated move.
  • The US ISM service PMI came in at 56.9 in August, up marginally from July’s 56.7. This four-month high exceeded consensus expectations which had predicted a reading of 55.3. New orders rose to the highest reading this year indicating further growth to come, and the positive survey results will support the Federal Reserve in its current tightening cycle as many sectors of the economy have maintained some momentum even as rate hikes have been implemented.
  • Australia’s GDP grew 0.9% q/q in the second quarter, in line with projections and up from 0.7% growth in Q1. The economy was 3.6% larger y/y. Household spending was the key growth driver, expanding 2.2%, boosted by the ending of pandemic-related travel and activity restrictions after a drawn-out lockdown.
  • It has been reported that Mubadala is in the process of buying Fortress Investment Group from Softbank for a deal that could exceed USD 2bn.

Today’s Economic Data and Events

  • 10:00 Germany industrial production, July, % m/m. Forecast: -0.6%
  • 18:00 Bank of Canada rate decision. Forecast: 3.25%

Fixed Income

  • A large slate of corporate issuance and a stronger than expected services ISM in August pushed US Treasuries lower overnight, with much of the move coming during the US session. Yields on the 2yr UST added almost 12bps to settle at 3.5029% while the 10yr yield jumped by almost 16bps to 3.3493%. The next major data point to watch for is US inflation for August, due next week and expected to show another moderation.
  • European bonds closed softer as the market waits for another large hike, potentially as much as 75bps, from the ECB later this week. Martins Kazaks, a member of the ECB governing council and head of Latvia’s central bank, said the ECB wouldn’t stop hiking above the neutral level, according to press reports. Yields on 10yr Germany bunds added 7bps to 1.631% while the 10yr French yield added about 3bps to 2.219%.
  • Gilt yields soared in response to the new British government’s plans to offset high energy costs which will likely require considerable borrowing. Yields on the 10yr gilt jumped about 16bps overnight to 3.091%, breaking above 3% for the first time since 2013, which was both pre-Brexit and pre-pandemic.


  • Currency markets continue to abandon all positions bar the US dollar which gained against nearly all peers overnight. With the Eurozone staring down a potentially large hike in rates and a deep recession, EURUSD is dropping steadily and has moved below the 0.99 level, closing down 0.25% overnight and trading at 0.9887 in early trade today. USDJPY soared by 1.6% to 142.80 and has pushed above 143.30 in early trading today. There are to be no material barriers to cap the pair from pushing ever higher.
  • GPBUSD was in focus in the wake of the first day of a new British government with the first announcements of policy getting a negative reaction. Sterling’s intra-day gains faded and it has extended its losses in trade this morning to 1.1479, down 0.36%.
  • Commodity currencies fared poorly as well with USDCAD up by about 0.1% to 1.3154. AUDUSD weakened by 0.9% to 0.6735 as markets passed by the RBA’s 50bps hike while NZUSD dropped 0.9% to 0.6039.


  • European equity markets enjoyed a modest rise yesterday as plans around support for households through the energy crisis were mooted in various capitals. The DAX added 0.9%, while the FTSE 100 and the CAC both grew 0.2%.
  • Selling pressure remained in play in the US, however, with data releases doing noting to dispel expectations of further rate hikes from the FOMC. The S&P 500, the Dow Jones and the NASDAQ fell -0.4%, -0.6% and -0.7% respectively.
  • Locally, the DFM added 1.4% while the ADX fell -0.3%. In Saudi Arabia, the Tadawul lost -0.9%.


  • A stronger dollar and China’s drag on demand thanks to is restrictive Covid policies are putting hard brakes on oil prices. Brent futures fell by 3% overnight to USD 92.83/b while it has given up about another 1% in early trade today. Likewise WTI has pushed down in early trading to about USD 85.80/b, about a 1% drop.

Click here for charts and tables


Written By

Daniel Richards Senior Economist

Edward Bell Head of Market Economics

Khatija Haque Head of Research & Chief Economist

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