31 August 2022
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China PMI data reflect subdued activity in August

By Daniel Richards

  • China’s manufacturing PMI rose slightly to 49.4 in August from 49.0 in July but remained in contraction territory last month. The services PMI slipped to 52.6 last month from 53.8 in July. The data suggests that China’s economy continues to face headwinds from the government’s zero-Covid policy and the property sector, with manufacturing also affected by power shortages last month. The PBOC has already cut rates and the government has increased spending, but more monetary and fiscal support is expected in the coming months to boost confidence and support demand.
  • Germany’s inflation accelerated as expected in August, coming in at 0.4% m/m and 8.8% y/y (EU harmonized reading) from 8.5% y/y in July and the highest in recent history, raising expectations of an outsized rate hike by the ECB in September. The main driver of price growth was food and energy, as it has been for most of this year, despite government measures to curb the impact of higher oil and gas prices on consumers. Yesterday, the EU has announced that it will intervene to limit the impact of higher energy prices on consumers in the bloc, although the specific measures have yet to be agreed. The market is now fully pricing a 50bp rate hike from the ECB, with a 60% probability of a 75bp hike.     
  • In the US, consumer confidence rose sharply to 103.2 in August from 95.3 in July according to the Conference Board, the highest reading since May. The improved optimism likely reflects lower petrol prices over the last two months and more consumers were planning major purchases and holidays in August than in prior months.
  • Separately, the JOLTS survey showed that there were still 11.2mn job openings in the US in July, up from the June reading and above market expectations. The strong labour market and improving consumer confidence will likely give the Fed comfort that the economy can withstand higher interest rates.  Yesterday several policy makers echoed Jerome Powell’s comments on their commitment to bringing inflation back to 2% and the need for monetary policy to remain restrictive for “some time”.

Today’s Economic Data and Events

  • 11:00 Turkey Q2 GDP forecast 1.5% q/q and 7.4% y/y
  • 13:00 Eurozone CPI (preliminary, Aug) forecast 0.4% m/m and 9.0% y/y
  • 16:15 US ADP private sector employment change (Aug) 300k

Fixed Income

  • US Treasuries had another day of wide swings as an initial move higher as the effects of the Jackson Hole hawkishness faded gave way later in the day as US data was generally positive. The 2yr UST yield saw an intraday move of more than 10bps , topping out near 3.5% before ultimately settling only about 2bps higher at the close at 3.4416%. The 10yr yields showed a similar scale of move, getting up as high as about 3.15% before closing the day essentially flat at 3.1025%.
  • European bonds had similar moves. After initially pushing much stronger during the day, yields turned around and most bonds ended the day weaker. Yields on the 10yr bund added less than 1bps to 1.505% while the 10yr French yield closed up less than 1bps at 2.125%. Gilt yields rose more than 10bps, however, to 2.699% as the outlook for higher rates persists.   


  • Currency markets generally moved toward the dollar overnight with the exception of EURUSD. The single currency settled higher, closing above parity for the first time since mid-August. Expectations of a 75bps hike or more front-loaded action from the ECB is helping to set a floor under the Euro, for now at least. USDJPY added another 0.05% to 138.79 while GBPUSD dropped 0.45% to 1.1656.
  • Commodity currencies fare much worse with USDCAD up 0.6% to 1.3093 and AUDUSD down 0.7%. A sharp reversal in oil prices overnight will have helped to weaken sentiment toward the commodity complex.


  • Indian equity markets were outperformers yesterday as both of the country’s benchmark indices recorded strong gains which tipped them into positive ytd territory. The Nifty added 2.6% and the Sensex 2.7%.
  • By contrast, developed market stock markets remained under pressure. In the US, the Dow Jones lost -1.0% and the NASDAQ and the S&P 500 both closed down -1.1%. In Europe, the DAX added 0.5% but both the CAC (0.2%) and the FTSE 100 (0.9%) ended the day down.
  • Locally, the DFM added 0.8% but the ADX closed flat. In Saudi Arabia, the Tadawul lost -0.6%.


  • Oil prices fell heavily overnight with Brent down 5.5% to close back below USD 100/b at USD 99.31/b. In WTI, prices also fell by 5.5% to USD 91.64/b. The declines come even as markets endure heightened political instability in key producers Iraq and Libya.
  • API data showed a small build in US crude stocks last week of less than 600k bbl while both gasoline and distillate stockpiles declined.

Click here for charts and tables




Written By

Daniel Richards Senior Economist

Edward Bell Head of Market Economics

Khatija Haque Head of Research & Chief Economist

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