The bunch of Japanese key figures released this morning overall disappointed a bit

Market movers today

• Overall, we expect to see a slight improvement in euro area PMIs for July. In our view it will probably be a bit more pronounced in the service sector, where we expect a rise to 53.1 from 52.8 in June, while lagged effects of the slowdown in China and the US earlier this year still weigh on activity in the manufacturing sector – we forecast a small rise to 51.9 from 51.8 in June. Regarding the US manufacturing PMI, we forecast a rise to 58.0 from 57.3 in June, thus indicating a further pickup in manufacturing activity in the US.

• The Ukraine-Russia conflict is still very much in focus although the market reaction has been relatively muted following the announcement of new measures to sanction Russia on Tuesday. Today the EU Commission will propose additional names to put on the list of individuals targeted by EU sanctions. We could also get further hints about potential ‘phase 3’-sanctions targeting specific Russian economic sectors, which could be put in place if Russia does not contribute to defuse the conflict.

Selected market news

China’s HSBC manufacturing PMI jumped to 52.0 in July from 50.7 in June – a much higher figure compared to our own and the consensus expectation. The positive surprise further confirms our view that the Chinese economy has moved to a phase of moderate recovery. We expect growth in the Chinese economy to accelerate further in the third quarter.

The bunch of Japanese key figures released this morning overall disappointed a bit. July’s Manufacturing PMI dropped to 50.8 – we had expected a solid increase to 52.1. Furthermore, export growth turned negative and imports expanded less than forecasted. The news triggered a slightly negative reaction in the Japanese stock market on a day, however, where the market found support in the good news from China.

Reserve Bank of New Zealand hiked its key policy rate by 25bp to 3.50% as expected. However, it further signalled a pause in the hiking cycle, which triggered a move lower in NZD/USD.

The EU Council announced yesterday that Lithuania will become the nineteenth country to introduce the euro. Lithuania is set to adopt the euro on 1 January 2015.

Scandi markets

In Sweden, employment growth continues to expand at a strong pace, while unemployment has moved sideways for two years. Partially it has to do with the fact that the labour force grows as well, but at the same it indicates that there are still free resources in the economy. We expect more of the same in June, that unemployment seasonally adjusted rises from 7.8% to 7.9%. If so, the Q2 average will be 7.9%, one tenth below the Riksbank forecast. Unadjusted unemployment tends to jump one percentage point in June as students seek summer jobs. We also get PPI data. We doubt that these data will move the markets in any significant way.