Euro-area manufacturing PMIs

Market movers today

• Focus will be on European and Asian data with the US closed for Labour Day.

• In Germany the second release of GDP growth together with first estimates of its components is due. The economic contraction of 0.2% q/q in Q2 should be confirmed but we expect private consumption to have increased. The slowdown was due to weak production as a result of the strong currency, weakness in the US and China in Q1 and uncertainty about the Ukraine crisis at the end of the quarter.

• Euro-area manufacturing PMIs are due for release and focus will be on the first estimate of the Spanish and Italian figures. Based on the flash PMIs for the euro area we expect the periphery PMIs to decline in August. The Spanish PMI has trended upwards during 2014 consistent with higher economic activity, while the Italian PMI has weakened recently but remains stronger than the latest GDP figures.

• The rest of the week will be very interesting. We expect no rate cut or QE from the ECB but all options should be left open in a very dovish statement. In the US we expect the labour market to show strong gains in employment in August. Bank of Japan should acknowledge increasing downside risk from the consumption tax hike but new easing measures are unlikely until late October. In Sweden Riksbanken is expected to remain on hold and keep its repo-rate forecast broadly unchanged.

Selected market news

In Ukraine, President Putin has escalated his rhetoric as he has called for negotiations on the ‘statehood’ of southeast Ukraine. The comments from Putin followed amid an intensification of fighting in eastern Ukraine and after the EU prepared to impose tougher sanctions against Moscow.

In China, the official manufacturing PMI for August declined to 51.1 from 51.7 in July, see China: official manufacturing PMI confirms loss of momentum, 1 September. The decline was broadly in line with consensus expectations and smaller than the drop in HSBC/Markit manufacturing PMI. The official manufacturing PMI has been less volatile than the HSBC/Markit manufacturing PMI in recent cycles. Asian stock markets are mostly trading higher this morning despite the decline in the Chinese manufacturing PMI and the geopolitical concerns.

ECB’s executive board member Benoit Coeure gave some dovish comments and supported Draghi’s stance ahead of the upcoming ECB meeting. Coeure said the ECB is prepared to further adjust the direction of its monetary policy but his comments suggest that the ECB will not go down the QE path yet, as he said the ECB ‘is ready to offer additional liquidity to the banks, on condition that the banks increase their credit to the real economy’.

In Europe, Poland’s prime minister Donald Tusk has been named as president of the European Council with unanimous support from the EU leaders.