Paris Olympics boost Eurozone PMI

PMI surveys out of the Eurozone yesterday implied softening growth in the bloc’s biggest economies, supporting the case for greater monetary easing from the ECB in the coming months. France’s manufacturing PMI fell to 42.1, down from 44.0 the previous month and below the predicted 44.5. This marked the 19th straight contractionary reading for the index. There was some upside in France as the services PMI accelerated to a more than two year high of 55.0, up from 50.1 and far higher than the predicted 50.3. However, this uptick was driven by the Olympic Games held in Paris through July 26 to August 11, and the boost will likely dissipate in subsequent readings. In Germany, the manufacturing survey also declined, coming in at 42.1, from 43.2 and missing the predicted 43.3. Services also slowed, but did remain positive at 51.4, compared with 52.5 the previous month. For the Eurozone as a whole, the manufacturing PMI stood at 45.6, down marginally from 45.8 in July, with the services PMI rising from 51.9 to 53.3, bolstered by the France print. This took the composite Eurozone PMI reading to 51.2.

The US manufacturing PMI index fell to 48.0 in August, down from 49.6 previously and missing the predicted 49.5. This marked the fastest contraction in the manufacturing sector seen so far this year and new orders contracted once again while inventories expanded, suggesting further weakness to come. Services came in higher though, rising from 55.0 to 55.2, leading to a composite score of 54.1. Positively for the US Fed, there was evidence of slowing price pressures in the services sector. Meanwhile, initial jobless claims were at 232,000 in the week to August 17, in line with expectations and up from 228,000 the previous week. Continuing claims edged up only slightly, from 1.859mn to 1.863mn.

The UK’s PMI surveys were more positive, reflective of a general improvement in economic conditions in recent months which was underpinned by the BoE cutting interest rates for the first time in this cycle at its last meeting. The manufacturing PMI came in at 52.5, up from 52.1 in July and higher than the expected 52.2. This marked the fourth expansionary reading in a row and the highest since June 2022. Services also accelerated, to 53.3, from 52.5 previously, leading to a composite reading of 53.4, up from 52.8 in July.

In India, the manufacturing PMI moderated in August as it fell to 57.9, from 58.1 in July. The services PMI was up modestly at 60.4, from 60.3, leading to a composite reading of 60.5. The manufacturing index was at a three-month low with new order growth slowing to the lowest since February. Nevertheless, the overall expansion remained robust, and India is set to remain one of the strongest-growing major global economies this year.

Japan’s CPI inflation ticked up to 2.8% y/y in July, in line with June’s print and higher than the predicted 2.7%. Stripping out food and energy, inflation slowed to 1.9%, from 2.2% previously, while stripping out just food inflation was 2.7%, up from 2.6%.

With oil prices under pressure this week as demand questions mount and risk premia fade, there are mounting questions around whether OPEC+ will ease off on its oil production curbs through the remainder of the year as planned. The body will also likely look for greater compliance on cuts from members, and yesterday Iraq and Kazakhstan provided updated compensation plans for the volumes that they overproduced through the first seven months of the year. In August, Iraq is scheduled to make an additional cut of 90,000 b/d, while Kazakhstan will cut by an extra 49,000 b/d. The volume of compensatory cuts will differ on a month-by-month basis after this, and the ‘entire over-produced volumes will be fully compensated for by September 2025.’

Today’s Economic Data and Events

18:00 US new home sales, July. Forecast: 624,000

18:00 US Fed Chair Jerome Powell set to speak on economic outlook at Jackson Hole

19:00 UK BoE Governor Andrew Bailey set to speak at Jackson Hole

Fixed Income

• US treasuries sold off yesterday after the PMI survey, on the services side at least, came in fairly strong. Yields on the 2yr rose 7bps to 4.0035%, while the 10yr dropped 5bps to 3.8521%.
• Jerome Powell is set to speak at Jackson Hole today, where he could give some indication as to the future trajectory of interest rates in the US.

FX

• The dollar index broke its run of five daily declines yesterday, closing up 0.5% against its basket of peers.
• EUR weakened against the greenback, falling 0.3% to 1.1112, while GBP closed flat at 1.3091 after hitting 12-month highs earlier in the session.
• Much of the dollar’s gains yesterday came against JPY which lost 0.7% against the dollar, falling to 146.29. The yen is ticking up again today on the back of the inflation print boosting rate hike expectations. BoJ Governor Kazuo Ueda confirmed this morning that the bank would continue to tighten policy.

Equities

• US equity markets fell back yesterday, breaking their run of gains and slipping away from near all-time highs as markets waited for Jerome Powell’s Jackson Hole speech. The NASDAQ was the biggest loser, slipping 1.7%, followed by the S&P 500 (0.9%) and the Dow Jones (0.4%).
• European indices were mixed. The CAC closed almost flat while the DAX added 0.2%. The UK’s FTSE 100 closed 0.1% higher.
• Locally, the ADX and the DFM both added 0.3%.

Commodities

• Oil prices broke their slump yesterday, with Brent futures climbing 1.5% to USD 77.2/b, while WTI also added 1.5% to USD 73.0/b.
• Both benchmarks are softening again this morning, however, and remain on track for a weekly loss as concerns around demand have come to the fore.