Developed market PMI surveys mixed in August

• The eurozone’s preliminary composite PMI came in broadly in line with forecasts at 59.5 in August, only slightly lower than July’s reading of 60.2. The data supports the view that growth in the Eurozone economy will be relatively robust in Q3 2021, even as other major economies are likely to see slower growth this quarter.
• UK and US PMI surveys both came in below forecasts in August and several points lower than the July reading.  In the UK, the weakness was in the services sector, with the flash services PMI falling to 55.5 from 59.6 in July while the manufacturing PMI remained just above 60.
• In the US too, the manufacturing sector appears to be holding up well with the PMI at 61.2, although this is still lower than the July reading of 63.4.  However, the services PMI fell to 55.2 from 59.9 as the surge in coronavirus cases may have deterred some consumers from travel and other services.
• Existing home sales posted a surprise gain of 2.0% m/m in the US in July, against expectations for a -0.5% decline.
• President Biden encouraged companies to impose Covid-19 vaccine mandates following the Food and Drug Administration’s full approval of the Pfizer-Biontech vaccine, in a bid to boost vaccination rates in the US. According to Our World in Data, only 51% of the US population is fully vaccinated against Covid-19, while the US Centers for Disease Control puts the figure at just over 60%.  The relatively low vaccination rate has contributed to the surge in hospitalisations in recent weeks.

Today’s Economic Data and Events

10:00 GE final reading Q2 GDP forecast 9.6% y/y

18:00 US Richmond Fed manufacturing index (Aug) forecast 24 prev. 27

18:00 US new home sales (Jul) forecast 3.1% m/m prev. -6.6% m/m

Fixed Income

• There was little movement in USTs to start the week, although 2s-10s spread continued to widen slowly. The 10-yr yield dropped -0.3bps to 1.2517% while the 2-yr closed almost flat at 0.2242%. Markets are likely waiting for any greater clarity on monetary policy over the remainder of the year to come out of the virtual Jackson Hole symposium at the end of the week.
• There was more pronounced movement elsewhere as 10-yr bund yields gained 1.4bps to -0.482%, while the 2-yr added 0.3bps to -0.752%. In the UK, 10-yr gilt yields climbed 1.2bps to 0.534%.
• Turkey’s 10-yr yield dropped -0.3bps yesterday to 16.820%.

FX

• Some of the dollar strength of last week was rolled back yesterday as concerns around the global economy seemingly abated somewhat on positive vaccination news. The dollar index lost -0.6% on the first day of the week to 92.958, although it is ticking up marginally this morning.
• The commodity currencies in particular saw a stronger performance against the greenback following their sharp sell-offs last week. The AUD and the NZD, which alongside the global issues are also being beset by domestic coronavirus crises, both rebounded yesterday. The AUD gained 1.1% to 0.7209 and the NZD 0.8% to 0.6892. The CAD appreciated 1.4% yesterday.
• The gains against the dollar were also seen in the majors, as GBP added 0.7% to 1.3719 while the euro added 0.4%. The Yen was less pronounced at 0.1%.

Equities

• Equity markets started the week on the front foot yesterday, amid buy-the-dip action and a general improvement in sentiment. In the US, the NASDAQ gained 1.6% to hit a new record close, while the S&P 500 and the Dow Jones added 0.6% and 0.9% respectively, while remaining off their peaks hit last week.
• The positive movement started in Asia where the Shanghai Composite added 1.5% and the Nikkei 1.8%. This momentum continued later in the day in Europe where the composite STOXX 600 added 0.7%.
• Within the region the Tadawul lost -0.1% yesterday while the ADX (0.1%) and the DFM (0.7%) both closed higher.

Commodities

• Oil prices benefitted from the broader market rally, with prices rising more than 5% yesterday for both Brent and WTI.  China appears to have successfully halted the community spread of the coronavirus and the full FDA approval for the Pfizer-BioNtech vaccine in the US is likely to result in more widespread public and private sector vaccine mandates.

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