German factory orders beat expectations

• Growth in Germany’s factory orders exceeded expectations in July, coming in at 3.4% m/m compared to projections of a -0.7% contraction. This followed an upwardly revised expansion of 4.6% in June. The index was boosted by an unexpected surge in foreign orders for ships, which masked the ongoing issues at large in the German manufacturing sector related to shortages of raw materials and semiconductors, which have hit the autos sector in particular. Germany’s IFO automobile production inventory assessment index is at an all-time low of -42.1, compared to a series average of 4.3.
• Investor confidence in the Eurozone has fallen from recent peaks, suggesting that the pace of the recovery is now slowing, as we have seen in various data points over the past month or so. The Sentix index fell to a five-month low of 19.6, down from 22.2 in August.
• Supply chain problems continue to weigh on the UK’s construction sector, as the IHS Markit construction PMI dropped to 55.2 in August, down from 58.7 the previous month. The index still indicates a robust expansion in the sector, but respondents cited issues with sourcing materials, rising costs, and a shortage of skilled labour which saw hiring slow down also. There were similar dynamics at play in the Eurozone construction sector, which is in contractionary territory according to the PMI which dipped from 49.8 in July to 49.5 in August.

Today’s Economic Data and Events

08:30 Reserve Bank Australia cash rate target. Forecast: 0.1%

13:00 Germany ZEW survey expectations, September. Forecast: 30.8

Fixed Income

• US Treasury markets were closed to start the week thanks to a public holiday in the US. Treasury futures are trading lower in early trade today with yields on the 10yr UST up by around 1.5bp so far. Bond markets in Europe were generally higher in trade overnight with 10yr gilt yields down by around 2bps with smaller declines in both German and French markets.

FX

• Currency markets were quiet in holiday affected trade with EURUSD drifting marginally lower but still holding on to a high 1.18 level while USDJPY nudged up toward 109.90. GBPUSD sold off slightly, falling 0.25% to 1.3837.
• Among the commodity currencies, CAD was the relative outperformer, with USDCAD holding nearly unchanged. Both AUD and NZD fell around 0.3% with the AUD in focus this morning around the RBA meeting.

Equities

• Equity markets were relatively quiet with the US markets closed, but Asian indices saw a positive start to the week. The Nikkei still has the wind in its sails following Yoshihide Suga’s announcement that he would effectively be stepping down as Prime Minister. The index added 1.8%, and with further gains this morning it is now back above 30,000 for the first time since April.
• There was also positive movement in Europe. Bolstered by the stronger than expected factory data, Germany’s DAX added 1.0%. The CAC gained 0.8% and the FTSE 100 0.7%.

Commodities

• Brent futures drifted lower with no material catalyst for movement one way or the other. Brent settled down 0.5% at USD 72.22/b while WTI was unchanged thanks to the US public holiday at the start of the week.

Click here to download charts and tables