People buy fruit and vegetables in a street market in Rome, Italy. Reuters

Eurozone business activity received a boost from France hosting the Olympic Games last month but the malaise in the bloc is likely to return once the Paralympics wraps up as demand remains weak, a survey showed.

HCOB’s composite Purchasing Managers’ Index for countries in the currency union, compiled by S&P Global and seen as a good gauge of overall economic health, jumped to 51.0 in August from July’s 50.2.

That exceeded the 50 mark separating growth from contraction for a sixth consecutive month but was a tad below a preliminary 51.2 estimate.

“An Olympics-driven rise in the eurozone’s composite PMI in August masks the underlying picture that the bloc’s current growth momentum is weak,” said Rory Fennessy at Oxford Economics.

“This adds further fuel to the fire for the ECB to cut rates on 12 September.”

The European Central Bank will cut its deposit rate twice more this year, in September and December, according to an over-80 per cent majority of economists polled by Reuters last month.

France’s services sector experienced its most robust expansion in over two years in August but growth in Germany’s slowed for a third consecutive month in a further sign that Europe’s biggest economy is losing steam.

Sentiment among German exporters is growing alarmingly dark, the BGA trade lobby group said on Wednesday, while the economic institute IfW Kiel said it expected the economy to contract 0.1 per cent this year.

In Britain, outside the European Union, services activity grew last month at the fastest pace since April and price pressures eased, with its PMI pointing to a more benign inflation outlook and a settling of the economy after July’s elections.

The Bank of England will cut interest rates just once more this year, in November, a majority of economists said in a Reuters poll, as British inflation is expected to stay above target.

Overall demand in the 20-member currency union fell for a third month, suggesting weakness ahead. The composite new business index was below the 50 threshold at 49.1, albeit slightly ahead of July’s 49.0.

A final PMI for the bloc’s dominant services industry leapt to 52.9 from 51.9, offsetting a continued contraction in the manufacturing sector.

But optimism about the year ahead waned among services firms. The business expectations index fell to 59.1 from 60.4, its lowest reading this year.

Eurozone government bonds held gains on Wednesday as investors’ nervousness over upcoming US jobs data this week has ignited widespread volatility and driven capital flows into traditional safe-haven assets.

Risk aversion this week has racked global markets as concern mounts ahead of Friday’s US employment report that could determine the size of any interest-rate cut by the Federal Reserve this month.

The jumpiness is all the greater because September is typically the worst month for equity market returns.

Bund yields posted their largest one-day fall in a month on Tuesday, with a drop of 6 bps, while two-year yields fell by a more modest 3.8 bps.

The European Central Bank, which meets next week, is expected to deliver another quarter-point rate cut. Board member Piero Cipolollone told a French newspaper on Wednesday the central bank had room to lower rates and was at risk of becoming too restrictive.

Benchmark 10-year Bund yields edged down nearly 4 basis points to 2.235 per cent, while two-year yields were down 5 bps at 2.332 per cent.

Commerzbank analysts noted that a steep drop in the oil price on Tuesday has helped the longer end of the Bund curve, as investors factor in how that might further suppress inflation and, therefore, the need for deeper rate cuts.

ECB policymaker Joachim Nagel, who has typically favoured higher rates, was quoted as saying on Tuesday “the great wave of inflation is over”, but added he would not decide whether to vote to cut rates in September until next week.

A German trade group on Wednesday sounded the alarm as the country’s exporters face a recession in foreign trade. Europe’s largest economy is already struggling.

In the short term, fixed income investors will stay focused on swings in the broader markets and on US employment data releases, starting with monthly layoffs and hiring numbers due later on Wednesday.

The wait will be over by Friday, when the US monthly employment report lands. Economists polled by Reuters expect to see a rise of 160,000 in the number of workers on nonfarm payrolls in August, versus July’s 114,000 increase.

Until then, government bonds were likely to fluctuate along with investor risk appetite, Jefferies strategist Mohit Kumar said.

“We are keeping our modest bullish bias on risky assets despite yesterday moves, but we are keeping the size of our positions small. As argued yesterday, it is a prudent idea to have some hedges in place as we expect increased volatility over the coming weeks,” he said.

Agencies