Serving No Purpose

European services have a bad month in August

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What's going on?

Figures out on Wednesday showed activity in the crucial services sector remained subdued in the eurozone last month. In the UK, its having its weakest year since 2008…

What does this mean?

The services sector of the economy includes everyone from barristers to baristas. In Britain, activity fell more than expected in August, echoing grisly manufacturing data earlier this week. But services makes up a much larger part of the economy which makes its negligible levels of growth this year even more ominous.

Things were only marginally better in the eurozone. Service sector activity there grew slightly last month, with Spain a notable hotspot thanks to the boost a controversial 22% jump in the minimum wage has given consumer spending. And while confidence about the next 12 months fell to its lowest level since 2013, there was some cheering news for Europeans on Wednesday: a rudderless Italy drifted closer to a new government.

Why should I care?

For markets: Bunga bunga for bond prices.
The prospect of a new administration Italys, er, 67th since 1945 sent Italian bond prices up and yields down (remember, the two move in opposite directions) [Tweet this]. Thats because investors think the next government will be less likely to clash with the European Union (EU) over its budget arrangements. Disappointing economic activity also means the European Central Bank looks sure to cut target interest rates (and therefore future bond yields) next week although some German bank CEOs are concerned about the side effects of even more negative rates.

The bigger picture: UK not OK.
The UK economys 0.2% shrinkage in the second quarter of 2019 hurt neighbors too: imports from Germany fell 21%. And Wednesdays weak services data suggests it looks set to narrowly contract this quarter as well, spelling gulp a dreadedrecession. Some think that scenario could yet be avoided, thanks to frantic September preparations from businesses ahead of Britains scheduled departure from the EU. But broader economic malaise makes it touch and go…

Originally posted as part of the Finimize daily email.

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