On January 6, 2026, Eastern Standard Time, the latest Eurozone PMI data released shows that the service sector has been in an expansion phase for seven consecutive months. Although the expansion momentum slowed in December, it remains firmly above the threshold line. Concurrently, there has been an uptick in service sector cost inflation and wage growth above long-term averages, reigniting market concerns about inflation stickiness. Chief Economist Cyrus de la Rubia of Hamburg Commercial Bank and Eurozone Senior Economist David Powell, among others, have concluded that the European Central Bank is more likely to maintain interest rates at their current level at this time. This expectation of "holding steady" is quietly reshaping the valuation anchors for foreign exchange, bonds, and risk assets, and also serves as an important contextual constraint on the risk appetite pricing in the cryptocurrency market.
Seven Consecutive Increases in the Service Sector: Recovery and Slowdown Coexist
● PMI Trajectory and Expansion Range:
● For the past seven months, the Eurozone service sector PMI has consistently remained above 50, confirming that the service sector is in an expansionary channel. Cyrus de la Rubia's interpretation indicates that the expansion rate of the service sector PMI in December slowed compared to previous months, but did not fall below the threshold line, suggesting a deceleration in momentum rather than a trend reversal.
● This trend, combined with the preliminary composite PMI for the Eurozone in August at 51.1, a 15-month high, and the preliminary service sector PMI for the same month at 50.7, shows that the service sector is one of the key supports for the composite PMI's return to the expansion range.
● Demand and Employment Details:
● Economists emphasize that new business growth remains "strong," with companies reporting new orders at relatively healthy levels, providing substantial support for service sector activity.
● At the same time, companies are choosing to "increase staff," indicating that management is not pessimistic about future orders and demand. This behavior of increasing employment during an expansion period lays the groundwork for employment and consumption prospects ahead of 2026 and serves as direct evidence of the resilience of the service sector.
● Although the recovery has slowed, it is structurally becoming more robust: companies are more inclined to optimize human resources and service supply to maintain capacity in a moderately expanding environment rather than pursuing aggressive expansion.
● Economic Resilience and Structural Divergence:
● The previous composite PMI reached a 15-month high in August 2025, signaling that "the Eurozone has not fallen into a comprehensive recession," reflecting the phase resilience of the overall economy.
● However, in this round of recovery, there is significant internal structural divergence: the service sector has contributed most of the expansion momentum, while other sectors, especially manufacturing, have performed weakly, creating a pattern of "acceptable overall performance but structural divergence."
● Therefore, the current seven consecutive increases appear more like a mild recovery supported solely by the service sector, and the market needs to recognize both "expansion is ongoing" and "momentum is slowing" rather than simply categorizing it as a V-shaped reversal.
Cost Inflation Resurgence: Wage Pressure Looms
The most noteworthy aspect of this round of data is not merely the PMI expansion but the renewed rise in service sector cost inflation. Cyrus de la Rubia points out that service sector cost inflation in the Eurozone rose again in December, while sales price inflation remained relatively stable, indicating that inflation pressure currently stems more from the cost side rather than terminal pricing power. In other words, the "pressure" felt by companies is from upstream and internal costs, rather than from the favorable conditions for "successful price increases." Wage growth has become a core variable in this round: the latest data shows that year-on-year wage growth has exceeded long-term average levels, which is particularly sensitive in typical service economies. Wages constitute a high proportion of the cost structure in the service sector, and rising wages will create longer-lasting rigid pressure through mechanisms such as contract renewals and collective bargaining. Therefore, the wage-service price transmission chain often exhibits a certain lag, and currently, we see cost pressures rising while price levels remain relatively stable; the next few quarters will be a key window to observe whether costs gradually transmit to terminal prices.
If cost pressures persist while terminal demand is insufficient to support significant price increases, companies will inevitably face difficult trade-offs between profit margins and employment strategies. One possible scenario is that profit margins are gradually compressed, with companies offsetting costs through internal cost reductions and increased individual efficiency; another, more defensive path may involve slowing new hiring, delaying salary increases, or even controlling working hours, thereby stabilizing profits without significantly impacting terminal prices. For the macroeconomy, the former is more friendly to employment but may drag down capital expenditure and profit expectations, while the latter could weaken employment and household income in the lagging phase, thereby constraining consumption momentum. It is precisely because wage pressure looms that the resurgence of service sector cost inflation is viewed by the European Central Bank as a signal that "cannot be taken lightly."
Weak Manufacturing Contrasts with Service Sector Resilience
In this round of data, the Eurozone economy exhibits a stark "unevenness": the service sector has expanded for seven consecutive months, while manufacturing has remained in a contraction zone. The latest data shows that the Eurozone manufacturing PMI recorded 48.8 in December, not only below the threshold line of 50 but also marking a nine-month low, indicating that orders, output, and external demand in the manufacturing sector are under pressure. This sharply contrasts with the service sector, which remains above the threshold line, highlighting the dual-track operation of the economic structure. On one hand, the service sector continues to expand, relying on domestic demand and localized services; on the other hand, manufacturing is under sustained pressure from multiple constraints such as slowing global trade, rising costs, and price competition.
Regional and industry divergence further amplifies this collision effect. As a core manufacturing powerhouse, Germany's PMI and industrial production data show significant weakening, while interestingly, some Southern European countries are performing more robustly in the service sector, relying on tourism, dining, transportation, and local services. For example, market commentary mentions that countries like Greece have seen more pronounced service sector expansion, becoming a local highlight. This divergence at both the national and industry levels complicates the overall concept of "Eurozone economic conditions": while the aggregate figures are acceptable, certain regions and sectors are clearly under pressure.
In terms of growth expectations, this structural divergence is intensifying market debates. One viewpoint argues that the resilience of the service sector is sufficient to offset the weakness in manufacturing, suggesting a "mild recovery" in the Eurozone, with the composite PMI remaining above 50 for an extended period as evidence. Another more cautious perspective emphasizes that weak manufacturing indicates soft medium- to long-term momentum in investment and foreign trade, making it difficult for the service sector to provide sustained support, thus leaning closer to "structural slowdown." Both narratives will reflect in asset pricing: the former is favorable for marginal recovery in risk appetite, while the latter leans towards a "low growth under high interest rates" combination, imposing an upper constraint on corporate profit valuations.
Interest Rates Hold Steady: Central Bank Focuses on Service Inflation
Under the combined influence of macro data and inflation signals, mainstream economists' judgments are converging. Cyrus de la Rubia commented that the service sector's seven-month expansion, companies increasing staff, and strong new business growth provide a recovery foundation for 2026, but cost inflation, especially wage-driven cost increases, gives the European Central Bank no reason to loosen monetary policy at this time. David Powell similarly pointed out that the economic resilience reflected in the Eurozone PMI, coupled with persistent inflation pressure, will support the European Central Bank in maintaining current interest rates this month. These viewpoints collectively point to one conclusion: the current data is "more hawkish," insufficient to justify rapid interest rate cuts.
The European Central Bank's focus on service sector inflation constitutes the core of this round of policy dynamics. Compared to commodity prices, which are highly influenced by international commodity fluctuations, service sector inflation is more closely related to domestic wages, rents, and structural factors in service supply. Once it rises, it often exhibits stronger stickiness. Currently, while service sector cost inflation is rising and sales price inflation remains relatively stable, from the central bank's perspective, this is a typical early stage of "potential transmission to terminal prices," thus suppressing short-term rate cut expectations. As long as year-on-year wages remain significantly above long-term averages, the central bank's inflation model will provide a "cautiously hawkish" guidance.
In terms of interest rate pricing, these macro signals have already reflected and will continue to reflect in the pricing frameworks of various assets. For the euro, maintaining high interest rates and delaying the expected timing of rate cuts typically provides some support for the exchange rate, especially when misaligned with potential easing cycles of other major central banks. The Eurozone bond yield curve may remain at a relatively high level, with short- to medium-term rates anchored by the "hold steady" policy, while the long end seeks a new balance between growth expectations, inflation compensation, and supply pressures. For risk appetite assets, including European and American stock markets as well as the cryptocurrency market, the current situation is closer to a "high interest rate + no recession" combination: on one hand, high rates suppress valuation centers and liquidity premiums, raising asset discount rates; on the other hand, the economy has not fallen into a deep recession, and the fundamentals can still provide some profit and narrative support. In this environment, the market is more likely to experience "structural trends" rather than a broad bull market.
News and Sentiment: Cautiously Optimistic with No Dramatic Fluctuations
From the news perspective, the public information surrounding the Eurozone PMI and inflation is relatively concentrated and transparent, with no unexpected "black swan" disturbances emerging. Core information mainly comes from official PMI data releases and interpretations by economists such as Cyrus de la Rubia and David Powell, and the market has formed a high degree of expectation absorption regarding the combination of "service sector expansion + rising cost inflation + weak manufacturing + central bank holding steady" over the past few weeks. Therefore, this round of data is more like a confirmation of existing judgments rather than a sudden event that opens new narrative channels.
In terms of community and market sentiment, the current state leans towards "neutral, slightly cautious." On one hand, the fact that the service sector has expanded for seven consecutive months and companies continue to hire has alleviated investor concerns about the Eurozone economy falling into a deep recession in 2026, with optimistic sentiment more focused on the possibility of a "soft landing or mild recovery." On the other hand, there is a general consensus in the market that persistent inflation pressure, especially wage-driven cost inflation, will force the European Central Bank to maintain high interest rates for a longer period. Investors are gradually accepting the reality of "normalizing high interest rates," leading to more refined risk exposure allocations rather than extreme risk-taking or panic withdrawals.
In terms of funding and trading response paths, this set of data leans more towards "trend confirmation" rather than "emotional turning point." For traditional assets, long-duration bonds face ongoing valuation pressure in a high interest rate environment, with funds preferring to flow into stable cash flow, strong pricing power corporate stocks, and credit products with attractive yields. For the cryptocurrency market, this macro environment typically means:
● A widespread liquidity flood is unlikely to occur, and the valuation elasticity of high-beta assets is limited.
● However, as long as "recession panic" is not triggered, risk appetite will not be completely stifled, and institutional and high-net-worth funds will still engage in games within structural opportunities and narrative sectors.
Therefore, the market overall has not experienced dramatic fluctuations due to this PMI data, but has made moderate adjustments in positions and durations within the existing expectation framework.
Outlook for 2026: High Interest Rates and Structural Opportunities
Looking ahead to the first quarter of 2026, under the backdrop of continued expansion in the service sector, pressure on manufacturing, and rising cost inflation, the European Central Bank's policy path is more likely to present an "extended wait-and-see period." If the service sector PMI continues to remain above the threshold line, year-on-year wages maintain levels above long-term averages, and inflation indicators do not show significant declines, then decision-makers will lack strong motivation for proactive interest rate cuts. Only when growth shows more obvious downside risks or financial conditions tighten excessively threatening the real economy might the policy focus shift from "anti-inflation" back towards "growth preservation." Therefore, the baseline scenario for the first quarter of 2026 remains that interest rates will stay within the current range, with the central bank primarily managing market expectations through forward guidance rather than actual operations.
To change the current "hold steady" situation, a series of key variables need to undergo directional changes. First is wage growth; if the results of negotiations in the coming months show that wage increases are falling back towards long-term averages, the cost inflation pressure in the service sector will significantly ease, opening up space for interest rate cuts. Second is the stabilization of the manufacturing sector; once the manufacturing PMI exits the contraction zone and approaches or returns above 50, it will alleviate concerns about medium- to long-term growth, giving the central bank room to slightly ease interest rate pressure when inflation is under control. Additionally, if core inflation can significantly decline again, especially if service inflation excluding energy and food falls back to near the central bank's target, it will fundamentally weaken the hawkish stance. The combination of these three types of variables could trigger a policy shift from "prolonged high levels" to "gradual interest rate cuts."
On the asset level, prolonged high interest rates will reshape the return-risk structure of global risk assets. For European and American risk assets, the risk-free rate anchor for valuations has been raised, and the market demands higher quality in earnings growth and cash flow, leaning towards assets with stronger earnings certainty and cash dividend capabilities. At the same time, the volatility center may rise, leading to more frequent event-driven market movements. Euro assets are expected to gain relative advantages under the support of interest rate differentials, but internal growth divergence and fiscal uncertainties will limit their upside potential.
For the cryptocurrency market, the long-term high interest rates mean that the "era of free liquidity" has been confirmed as over. Passive funds and high-leverage speculation will find it harder to replicate the extreme conditions of the previous cycle, and project valuations will need to rely more on real cash flows, on-chain revenues, and verifiable use cases. In such a macro environment:
● Projects with clear application scenarios, fee income, or stable user bases are more likely to attract medium- to long-term allocations from institutional funds.
● High-beta tokens driven by narratives but lacking fundamental support are vulnerable to valuation in a high discount rate environment; if growth expectations falter, the magnitude of pullbacks may be amplified.
● During macro risk fluctuations, leading assets are more sensitive to changes in global liquidity, exhibiting tighter correlations with traditional risk assets.
Overall, the seven consecutive increases in the Eurozone service sector and the interest rate dynamics lay the foundational scenario of "high interest rates + structural recovery" for the macro-asset pricing framework in 2026. For all participants, more finely tracking service sector inflation, wage growth, and the recovery process in manufacturing will be key to judging the next phase of policy and market rhythm.
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