Today's report on German manufacturing shows that Germany's mighty industrial sector is slumping (chart 1).
This is significant not only for European growth expectations (ratcheted lower) but also for German and US inflation expectations.
One day is hardly a trend, but today's price action is informative:
- Chart 2 shows inflation expectations as measured by German 10-Year break-evens. After a meaningful rebound induced by a dovish Fed and buoyant equity markets, these inflation expectations have pulled back today. The pullback is 4 basis points, not an atypical pullback, but one worth watching.
- Chart 3 shows US