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China data drops sharply

Edward Bell - Senior Director, Market Economics
Published Date: 31 August 2021


  • PMI data out of China showed a considerable slowdown in activity in August as the country grapples with the spread of the delta variant of Covid-19 and the government there uses strict containment measures. The official non-manufacturing PMI fell to 47.5 for August, a sharp drop from more than 53 reported for July and well below market expectations. The August reading for the services and construction industry represent the first month of contraction since February last year when Covid-19 essentially shut down all of China’s economy. Manufacturing managed to hold up a little better, declining in line with expectations to just barely above the neutral 50 mark.
  • Factory activity in Japan slowed in July with total industrial production dropping 1.5% m/m from June and slowing to growth of 11.6% y/y from 23% previously. Like many other major manufacturing dependent economies, Japan will be reeling from supply chain disruptions as Covid-19 outbreaks across much of the rest of Asia affects production of components and also shutters ports and logistics centres.
  • The European Commission’s economic sentiment indicator fell in August to 117.5, down from a peak level of 119 recorded in July. Consumers and industry were responsible for the decline with concerns over the spread of the delta variant of Covid-19 and inflation pressures dampening economic enthusiasm. Order books for industry weakened in August, sending a negative signal for the outlook for growth in the end of Q3.
  • Saudi Arabia’s net foreign reserves moved lower in July, declining by more than USD 4bn month/month to USD 437bn. Since April 2020 reserves at the Saudi Central Bank have stayed roughly steady at around USD 440bn, albeit down considerably from closer to USD 500bn in 2019. Broad money supply growth accelerated to 9.8% y/y from 9.1% in June, while private sector credit growth remained robust at 15.5% y/y.  Point of sale transactions grew 23% y/y in July, as consumer demand has continued to recover despite higher VAT and customs duties imposed last summer. Consumer spending grew just over 10% y/y in the year to July.

Today’s Economic Data and Events

13:00 EZ CPI y/y August: forecast 2.1%

16:30 CA GDP y/y June: forecast 8.8%

18:00 US Conf. Board consumer confidence August: forecast 123

Fixed Income

  • US Treasuries gained to start the trading week as the market absorbed the ‘dovish taper’ narrative around Fed chair Jerome Powell’s Jackson Hole speech. The apparent disconnect by the Fed of the timelines for tapering asset purchases and raising rates looks to be applauded across asset classes and has helped to nudge UST yields lower. The 2yr UST yield fell more than 1bp overnight to 0.2014% while the 10yr UST yield dropped nearly 3bps to 1.2785%.
  • Emerging market USD bonds rose overnight in line with near all other bond markets. With US rates likely to remain on hold well throughout 2022, emerging market bonds could benefit from increased flows amid yield hunters.
  • Standard & Poor’s affirmed their sovereign rating on Pakistan at ‘B-‘ with a stable outlook.


  • Currency markets were generally quiet in the wake of the Jackson Hole meetings with most pairs holding to narrow ranges. A slate of PMI numbers and the US jobs report at the end of the week will provide the next major trajectory for prices with a positive surprise on employment likely to send the dollar higher.
  • Among the majors, USDJPY, EURUSD and GBPUSD closed virtually unchanged overnight. There was a slight bid in favour of the CAD with USDCAD slipping by 0.1% to 1.2606 while both AUD and NZD were offered.


  • Global equity benchmarks generally remain buoyed by the prospect of rate hikes occurring well in the distance. The S&P 500 added 0.43% overnight while the NASDAQ was up sharply by 0.9%. In Europe, markets were also broadly higher with the EuroStoxx 50 index adding almost 0.2%.
  • Asian markets are mixed in early trading today with the Nikkei off by 0.3% while the Hang Seng and Shanghai Composite are both moving higher.
  • Regional markets were higher almost across the board overnight. The Tadawul added 0.67% while the Abu Dhabi exchange gained more than 0.4%. The DFM was the standout in the opposite direction, although the decline was very modest at 0.05%.


  • Oil prices extended last week’s gains in the run up to this week’s OPEC+ meeting. Brent futures added almost 1% to USD 73.41/b while WTI gained 0.68% at USD 69.21/b. The impact of Hurricane Ida has been felt more in product markets than crude with gasoline futures up almost 1.5% as pipelines taking product away from the Gulf region have been halted to check for damage.
  • OPEC+ meets tomorrow with expectation that they will stick to their plan of adding 400k b/d in monthly increments until the end of next year. Oil prices have recovered much of their lost ground from mid-August which should likely encourage OPEC+ producers to maintain their nerve on adding barrels in the face of concern over the spread of the delta variant of Coivd-19.

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