Flash PMIs are likely to show continued slowdown in the economy

In Asia, stocks fell as Wall Street stumbled amid expectations that the Federal Reserve will stress its need for sharp rate hikes later this week in Jackson Hole. So, the European markets are expected to open lower.

On Tuesday, the dollar held steady amid safe-haven flows while the euro hovered around a two-decade low.

In the run-up to the critical flash purchasing managers index survey data, which may show another month of business contraction, there's no shortage of bad news in the region. Soaring gas prices, a recession looming over Europe, and red-hot inflation have already driven the euro to its lowest level in over two decades, while the pound dipped to near its lowest level in more than two years.

It is not entirely new for markets to be concerned about runaway gas prices. Still, as the EU faces more cuts in Russian oil and gas exports, the situation will likely deteriorate further.

With today's economic data, we'll get more insight into the damages caused by high energy prices, the extreme weather we saw in Europe with low river water levels, and forest fires.

Despite rising prices and weakening economic activity, PMIs across Europe and the UK have remained positive this year. The manufacturing sector remained resilient despite a challenging macro environment until a few months ago.

A sharp decline in the latest ZEW expectations survey, which dropped to its lowest levels since 2008, shows that the resilience of Q2 has given way to an increasing decline in economic activity as Q3 gets underway.

German manufacturing has been hit hard by rising energy prices and falling Rhine water levels. Today's August flash PMI is expected to drop from 49.3 to 48, while services activity is also likely to slip further from 49.7 to 49.

The picture in France is not much better. Although tourism may boost the services sector, forest fires may still lower economic activity. Manufacturing economic activity is likely to slip to 49 from 49.5. At the same time, services could fall from 53.2 by much more than the 53 predicted. 

As for the UK, hiring patterns remain solid, and while costs have increased, businesses have been able to pass them on. As August is a slow month due to holidays, we may see the PMI start to show contraction, down from 52.1 in July for manufacturing and 52.6 in July for services.

The US services PMI fell into contraction territory in July, falling to 47.3 in stark contrast to the ISM services, which jumped to 56.7. Today's numbers are expected to bring some relief, with the Services PMI rising to 49.2 and the manufacturing PMI sliding from 52.2 to 52, while the new home sales figures are forecast to cool down from 590k to 575k.