This morning the final Chinese Caixin manufacturing PMI

Market Movers

• Today, final euro area manufacturing PMI figures will be released. Focus will be on the first release of the Italian and Spanish figures. In both countries, the manufacturing PMIs should remain around the current relatively high levels, implying the PMIs in the periphery countries in July should be better than the average euro area figures, which weakened in July due to a disappointing French figure. In the UK, we expect the manufacturing PMI to increase slightly.

• In the US we expect ISM manufacturing to decline to 53.1 in July from 53.5 in June. Regional PMIs generally suggest a lower reading and the order-inventory balance also indicates the ISM index could worsen a bit. Looking further ahead, we continue to expect a moderate pick up in ISM manufacturing in H2 as the manufacturing sector should benefit from an overall strengthening of demand.

• Focus will also be on US core PCE inflation as this is the Fed’s preferred measure of inflation. Core CPI inflation for June has already been released and prices rose by 0.2% m/m, lifting the annual rate slightly to 1.8% from 1.7%. However, core PCE inflation is lower and we expect it to remain unchanged at 1.2% y/y with a monthly increase of 0.2%.

• The main release during the rest of the week is the US labour market report for July, out on Friday. This is one of the important releases ahead of the Fed meeting in September, at which we expect a first 25bp rate hike.

• In Sweden we expect the July manufacturing PMI to bounce, see more on page 2.

Selected Market News

On Friday the US Employment Cost Index figure for Q2 was much weaker than expected and resulted in lower US treasury yields, especially in the short end of the curve, and a sharp decline in the USD. However, the headline figure was worse than the details as the weak print was mainly driven by two of the service sectors (information and professional services). The weak headline figure does not support our call for a hike in rates in September, but the FOMC will receive further information about the labour market ahead of the meeting. We stick to our call of a first hike in September, although it is dependent on incoming data.

This morning the final Chinese Caixin manufacturing PMI for July (formerly HSBC PMI) was revised down to 47.8 from 48.2 in the flash estimate. This is the lowest level in two years and suggests that China is suffering from the real appreciation of the CNY and that the economy is feeling a stronger headwind than expected from the recent equity market turmoil.

Stock markets in Asia are mostly lower on the back of the downward revision to the Chinese manufacturing PMI. The oil price has also moved lower with Brent crude trading below USD52/bbl for the first time since January.