European PMI numbers hold steady

• PMI numbers from major economies showed a welcome stabilization in August after some disappointing data out from China earlier in the week. Manufacturing activity in the Eurozone essentially held steady with the regional PMI holding at a strong 61.4, down marginally from the July level, with Germany, France and Italy all reporting decent data prints. Turkey also held up as far as the manufacturing sector goes wit the August number actually ticking up slightly to 54.1 from 54 a month earlier. Factory activity in the UK was also strong, at 60.3 for August, down only marginally from 60.4 in July.
• While headline numbers were good, issues around supply chain disruptions and a backlog of orders remain a concern. The backlog in the Eurozone reached a 24 year high as delivery of components remains an issue.
• In the US, the ISM manufacturing index was marginally higher for August, rising to 59.9 from 59.5 in July. New orders remain buoyant as demand in the US economy is healthy but like other economies, issues around supply chains remain a concern. There has been some easing of input prices, falling to 79.4 from 85.7 a month earlier while delivery times have also started to improve, if still at stretched levels.
• The ADP report for the US labour market came in a modest 374k August, considerably short of market expectations. The weak job growth is reportedly down to soft performance in leisure and hospitatility, sectors that would be most directly affected by anxieties over the spread of the delta variant of Covid-19. The official NFP at the end of the week will provide more clues on the near term conditions in the US economy and may not be as weak as the ADP, which has had a patchy record in accurately signaling moves in the NFP report.
• Turkey’s economy expanded by 21.7% y/y in Q2, in line with market expectations. Private consumption was up strongly, rising nearly 23% while services and manufacturing beneiffted from low base effects of Q2 2020 to expand by more than 40% each. Exports also gained strongly, nearly 60%, while import demand rose by 20%.

Today’s Economic Data and Events

16:30 US Initial jobless claims Aug 28: forecast 345k

18:00 US Durable goods orders July: forecast -0.1%

Fixed Income

• The soft ADP report helped to push UST yields lower overnight, exacerbating a downward move that was already in place. The near end of the curve stayed relatively stable with 2yr UST yields at 0.2094% while the 10yr slipped by more than 1bp to 1.2936%. Both are inching higher in early trade today.
• Emerging market bonds received some support overnight with the positive Turkish GDP news helping improve the narrative around the economy there. Yields on 10yr Turkish government bonds fell almost 9bps to 16.42% while Indian yields fell almost 2bps to just under 6.2%.

FX

• The dollar extended its recent slump for a fourth day in a row as weak private sector jobs numbers push markets into accepting rate hikes won’t be happening any time soon. The DXY index fell almost 0.2% to 92.449 thanks largely to a 0.25% gain in the Euro to 1.1839. Decent PMI numbers for the eurozone for August may help to adjust the narrative somewhat around the regional economy ahead of next week’s ECB meeting.
• Elsewhere most currencies held to a narrow range. USDJPY is holding close to the 110 level while GBPUSD added 0.11% to 1.3777.
• The outsized move was in AUD which benefited from stronger than expected Q2 GDP numbers. The currency added almost 0.7% to settle at 0.7366.

Equities

• Global equity markets were generally higher overnight with gains in Europe outperforming North America. The S&P 500 held roughly flat, albeit with an upward bias, while the NASDAQ added 0.33%. The FTSE added more than 0.4% while the CAC gained a strong 1.2%.
• Local markets were split overnight with the DFM index adding 0.47% and the Abu Dhabi exchange declining by around the same amount. The Tadawul held nearly flat albeit with a downward edge.

Commodities

• Oil prices were split overnight in response to OPEC+ agreeing to maintain their production additions of 400k b/d per month. Brent settled down by 1.9% at USD 71.59/b while WTI nudged slightly higher to USD 68.59/b.
• There was apparently no real debate or discussion among OPEC+ policymakers on the plan to increase output for October, particularly with oil prices having improved from their mid-August lows. OPEC+ acknowledged the “uncertainty” posed by the pandemic but believes that “market fundamentals have strengthened” enough to absorb their production increases.
• Oil prices also received a benefit from a strong draw in US crude stocks of more than 7m bbl last week. Production in the US ticked up by 100k b/d to 11.5m b/d while implied demand surged more than 1m b/d last week to 22.82m b/d, its highest level on record. US weekly EIA data will likely be distorted by the effects of Hurricane Ida over the coming weeks and as such may not provide a clear picture of the fundamentals in the US oil market.

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