Euro area PMI manufacturing readings mixed but in contraction territory

Notes/Observations

- A historically quiet time in August is experiencing some increased volatility as European Aug Prelim Manufacturing PMI surprised to the upside despite 2nd straight contractions for Euro Zone, Germany and France. (Beats: Germany, Euro Zone; Misses: none; in-line: France). Miss across the board for Services PMI while Composite PMI's were mixed. Lower than expected contractions in the Manufacturing PMI seem to lift EU markets, US futures and lowered USD index (risk-on moves).

- Big miss in UK Aug Prelim Manufacturing PMI as it contracts for first time in 27 months at 46.0 compared with 51.0 estimate. Services PMI beat while Composite PMI matches estimates, both in expansion territory.

- EUR/USD still sits below parity at 0.994 but lifted from 20-year lows at 0.990 following PMI releases..

- As we await a response from the US to Iran's latest comments on nuclear deal which saw them drop a 'red line' issue, EU Foreign Policy Chief Borrell stated most countries in nuclear talks with Iran agree with EU proposal.

- Indonesia Central Bank (BI) unexpectedly raised 7-day Repo Rate by 25bps, citing the decision as a preemptive move to address rising core inflation and expectations.

- India RBI Gov Das said inflation has peaked, expecting CPI to ease to 4% (within RBI target range) in two years.

- Asia closed mostly lower with ASX 200 underperforming at -1.2%. EU indices are mixed between -0.7% to +0.7%. EU bond yields are higher. US futures are +0.3% in the green. Safe haven: Gold +0.3%, DXY -0.1%; Commodity: Brent +1.2%, WTI +1.5%, UK Nat Gas -1.2%; Crypto: BTC +1.4%, ETH +3.1%.

- No summer lull as market volatility picks up.

- Major European PMI Manufacturing remain in contraction but readings not deteriorating (Beats: Germany, Euro Zone; Misses: UK; in-line: France).

Asia

- Australia Aug Preliminary PMI Manufacturing registered its 28th month of expansion (54.5 v 55.7 prior.

- Japan Aug Preliminary PMI Manufacturing registered its 9th month of expansion but lowest since Jan 2021 (51.0 v 52.1 prior.

- China PBOC might cut the RRR in 2022 to offset MLF maturity, which could also drive the loan prime rates lower [followed the cuts in the 1-year and 5-year loan prime rates on Aug 22nd.

- Former PBOC Adviser Li Daokui stated that PBOC had room to cut main interest rates by up to 50bps over the next year if covid continued to drag on the economy.

Ukraine conflict

- US State Dept warned that Russia was stepping up efforts to strike Ukrainian civilian infrastructure in the coming days (1st time US had specifically warned that civilian and government buildings could be targeted).

- Ukraine Pres Zelenskiy warned of 'vicious' Russian attacks ahead of Ukraine's independence day [**Insight: Independence Day of Ukraine was the main state holiday in modern Ukraine, celebrated this week Aug 24th in commemoration of the Declaration of Independence of 1991].

Energy

- Saudi Energy Min stated that OPEC+ might need to tighten production to stabilize the market. Oil futures disconnect might force such action.

- Germany’s Uniper [Uno1.DE] to bring Heyden 4 hard-coal-fired power plant back onto market and to produce electricity from Aug 29th through April 30, 2023.

- US State Dept stated it was conducting serious review of Iran's latest comments on text of new nuclear deal proposal; Working as quickly as possible to issue an appropriate response to Iran's comments. There were still outstanding issues that must be resolved. Encouraged that Iran appeared to have dropped some of its non-starter demands.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.02% at 433.26, FTSE -0.34% at 7,508.49, DAX +0.48% at 13,293.92, CAC-40 +0.37% at 6,402.22, IBEX-35 -0.38% at 8,253.50, FTSE MIB +0.84% at 22,352.00, SMI -0.39% at 11,042.35, S&P 500 Futures +0.31%].

Market Focal Points/Key Themes: European indices open lower across the board but turned around following better than expected PMI figures; better performing sectors include energy and telecom; sectors trending to the downside include consumer discretionary and technology; Yandex confirms sale of News and Zen services to BK; Semcon receives takeover offer from Etteplan; earnings expected during the upcoming US session include Medtronic, Intuit and Nordstrom.

Equities

- Consumer discretionary: Semcon [SEMC.SE] +31% (offer to be acquired).

- Healthcare: Evolva Holding [EVE.CH] -2% (statement to SIX Exchange).

- Industrials: John Wood Group [WG.UK] -4% (earnings), Azoty [ATT.PL] -6.5% (halts some production due to high gas prices).

- Real Estate: TAG Immobilien [TEG.DE] +1.5% (earnings).

Speakers

- Turkey Fin Min Nebati stated that Q2 GDP growth to be above Q1 level.

- Japan FY23 budget requests said to reach about ¥110T.

- Indonesia Central Bank (BI) Policy Statement noted that today’s rate hike was an preemptive move to address rising core inflation and expectations. To strengthen Fx stabilization efforts as a way to manage inflation.

- India Central Bank (RBI) Gov Das noted that inflation had peaked and was expected to moderate going forward. No room for complacency around inflation and that incoming data and unfolding situation to decide on RBI actions. Bond markets functioning in an orderly manner and noted that long term yields reflected sentiment that inflation was getting anchored.

Currencies/fixed income

- USD maintained a firm tone as Fed Chair Powell would likely point to more interest-rate hikes on Friday in his Jackson speech. Greenback also aided by safe-haven demand as risk aversion sentiment weighed upon equity markets.

- EUR/USD began the session with fresh 20-year lows as the upcoming three-day maintenance by Russia on the Nord Stream 1 pipeline highlighted the possible weaponization of gas supply into Europe. Situation complicated by heatwaves in the continent have already put a strain on energy supplies and worries are growing that any disruption during the winter months could be devastating for business activity. Hoever, better German PMI data helped to sooth the bearish sentiment.

- GBP/USD tested the lower end of the 1.17 handle before consolidating its losses. UK PMI Manufacturing did dip into contraction territory for the 1st time in over two years.

Economic data

- (FI) Finland July Unemployment Rate: 6.6% v 6.8% prior.

- (DK) Denmark Aug Consumer Confidence: -25.1 v -25.6 prior.

- (ZA) South Africa Jun Leading Indicator: 125.2 v 124.7 prior.

- (TR) Turkey Aug Consumer Confidence: 72.2 v 68.0 prior.

- (ID) Indonesia Central Bank (BI) raised the 7-day Reverse Repo Rate by 25bps to 3.75% (not expected).

- (FR) France Aug Preliminary Manufacturing PMI: 49.0 v 49.0e (2nd straight contraction and lowest since May 2020); PMI Services: 51.0 v 53.0e; PMI Composite: 49.8 v 51.0e.

- (DE) Germany Aug Preliminary Manufacturing PMI: 49.8 v 48.0e (2nd straight contraction); PMI Services: 48.2v 49.0e; PMI Composite: 47.6 v 47.3e.

- (EU) Euro Zone Aug Preliminary Manufacturing PMI: 49.7 v 49.0e (2nd straight contraction); PMI Services: 50.2 v 50.5e; PMI Composite: 49.2 v 48.9e.

- (TW) Taiwan July Industrial Production Y/Y: 1.1% v 2.0%e.

- (IL) Israel July Leading “S” Indicator M/M: 0.1% v 0.2% prior.

- (UK) Aug Preliminary Manufacturing: 46.0 v 51.0e (1st contraction in 27 months and lowest since May 2020); PMI Services: 52.5 v 51.6e; PMI Composite: 50.9 v 51.0e prior.

- (IS) Iceland July Wage Index M/M: -0.1% v 0.0% prior; Y/Y: 8.1% v 8.1% prior.

Fixed income issuance

- (FI) Finland opened its book to sell EUR-denominated Apr 2027 RAGB bond via syndicate; guidance seen -56bps to mid-swaps.

- (UK) DMO sold £750M in 0.125% Mar 2039 Inflation-linked Gilts (UKi); Real Yield: -1.049% v -1.670% prior; bid-to-cover: 2.03x v 2.13x prior.

- (AT) Austria Debt Agency (AFFA) sold total €1.923B vs. €2.0B indicated in 3-month and 9-month Bills.

- (ZA) South Africa sold total ZAR3.9B ZAR3.9B indicated in 2030, 2031 and 2032 bonds.

- (ID) Indonesia old total IDR12.1T vs. IDR9.0T target in Islamic bills and bonds (sukuk).

Looking ahead

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (ZA) South Africa Q2 Unemployment Rate: 35.0%e v 34.5% prior.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills.

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO).

- 06:00 (UK) Aug CBI Industrial Trends Total Orders: 3e v 8 prior; Selling Prices: 41e v 48 prior.

- 06:45 (US) Daily Libor Fixing.

- 07:00 (IT) ECB’s Panetta (Italy).

- 08:00 (PL) Poland July M3 Money Supply M/M: 0.4%e v -0.8% prior; Y/Y: 5.9%e v 6.5% prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:30 (US) Aug Philadelphia Aug Nonmanufacturing Business Outlook Survey.

- 08:55 (US) Weekly Redbook LFL Sales data.

- 09:00 (EU) Weekly ECB Forex Reserves.

- 09:45 (US) Aug Preliminary S&P/Markit Manufacturing PMI: 51.8e v 52.2 prior; PMI Services: 49.8e v 47.3 prior; PMI Composite: No est v 47.7 prior.

- 10:00 (US) Aug Richmond Fed Manufacturing Index: -5e v 0 prior.

- 10:00 (US) July New Homes Sales: 575Ke v 590K prior.

- 10:00 (EU) Euro Zone Aug Advance Consumer Confidence: -28.0e v -27.0 prior.

- 13:00 (US) Treasury to sell 2-year notes.

- 15:00 (AR) Argentina Jun Economic Activity Index (Monthly GDP) M/M: -0.2%e v +0.3% prior; Y/Y: 5.8%e v 7.4% prior.

- 16:30 (US) Weekly API Oil Inventories.

- 17:00 (KR) South Korea Sept Business Manufacturing Survey: No est v 78 prior; Non-Manufacturing Survey: No est v 80 prior.

- 19:00 (US) Fed’s Kashkari.

- 21:10 (JP) Japan to buy 1-3-year, 3-5-year and 5-10-year maturities.

- 22:35 (CN) China to sell 3-year and 7-year upsized Bonds.

- 23:30 (TH) Thailand July Customs Trade Balance: -$1.6Be v -$1.5B prior; Exports Y/Y: 11.0%e v 11.9% prior; Imports Y/Y: 22.2%e v 24.5% prior.