Chinese manufacturing PMI fails to boost markets

• Chinese manufacturing PMI fails to boost markets

• Eurozone PMIs continue to disappoint

• Coalition forces attack ‘Islamic State’ positions in Syria for the first time

• FOMC speeches dominate US session

European and Asian markets are continuing the negative start to the week, posting further losses following a raft of poor eurozone PMI releases this morning. This comes despite a strong Chinese manufacturing PMI figure overnight, which managed to keep only the Shanghai composite above water. Meanwhile, the shelling of ISIS positions saw the first of many coalition military operations against the militant group within Syria. US markets are expected to follow European indices lower, with futures pointing towards the S&P500 -7, Dow – 43 and Nasdaq -17 points on the US open.

Today is clearly dominated by the release of various PMI figures across China, the Eurozone and US. Measuring the outlook of purchase managers within specific industries in relation to business conditions such as employment, demand and prices, the PMI figures typically provide markets with an idea of exactly where production, exports and jobs figures are going to move in the coming weeks and months.

The Chinese HSBC manufacturing PMI release overnight has been absolutely key in determining the degree of weakness within the manufacturing sector during the H1 slowdown this year, given the focus upon SME’s (small to medium sized enterprises). However, despite the clear influence of this figure, today’s strong reading made little impact upon the Asian markets, with the Shanghai representing the only market to post a gain. This inability to respond positively to strong data out of China shows an innate weakness within the markets, and geared us up towards the release eurozone figures which were expected to follow the pattern of weak figures seen in recent months.

True to form, the figures out of the Eurozone came in to the downside yet again, with the only main boost coming in the form of the French manufacturing sector, which managed to rise from 46.9 to 48.8. However, with the French manufacturing and services sectors now both contracting, there is little to shout about across the Atlantic. German manufacturing appears to be following suit, with the current level standing a mere 0.4 away from contraction (50.3). Ultimately, the Eurozone is in a mess, with inflation, growth, jobs and industry all weak. This is music to the ears of Vladimir Putin whose actions have driven the imposition of sanctions from the likes of Germany and France. However, with those measures showing little signs of easing due to ongoing Ukrainian conflict, there is clearly an underlying threat to Eurozone growth and it is something that will have to be addressed sooner rather than later. Mario Draghi has taken various steps, which have failed to make a significant impact as yet, however as seen in his Jackson Hole speech, the feeling is that this could be a problem which has both fiscal and monetary solutions and it will be interesting to see whether the emphasis will shift towards greater spending from the likes of France and Germany.

Overnight, the US was joined by their ‘coalition partners’ in attacking a number of ISIS positions in Syria. This represents both the first attack upon the ‘Islamic State’ within Syria (without the permission of Assad), along with the first attack of Middle Eastern countries upon the terrorist group. Of the coalition partners involved, military jets from Bahrain, Saudi Arabia, Jordan and the UAE were all cited as being involved in today’s attack. This is a major step given the importance of involvement from forces in the region and to some extent will appease the fears of many within the US that this will be another war which will be seen down the line as the US against Islam or the Middle East. The threat of ISIS is clearly as relevant to those within the Middle East as it is to the US and a global effort to avoid the genocide, beheadings and slavery that has been commonplace under the groups expansion is clearly something which is going to be one of the biggest global challenges this decade. That being said, the escalation of the conflict will of course raise questions over the risk appetite of many within the markets, who are no doubt worried about a major war which appears to be unfolding. As such, gold and Oil have seen a round of buying this morning, with global indices selling off. However, the moderate degree to which such moves have occurred shows that there is a degree of inevitability to today’s announcement.

The US session looks somewhat more quiet from an economic data point of view, with markets generally focusing upon speeches from two FOMC members, Powell and Kocherlakota. The FOMC has been in spotlight over the past 24 hours, with yesterday’s announcement that the Philidelphia Fed President William Plosser will retire in March 2015. This is a major shift, with Plosser representing the most hawkish and vocal dissenter of the committee. However, with regards to today’s speeches, the interest will largely be geared towards Jerome Powell, given the fact that Narayana Kocherlakota already spoke overnight and will thus be likely to repeat much of the same comments. Kocherlakota cited low inflation as an ongoing worry and thus there is the chance that monetary policy will remain accommodative for a longer time than desired, simply to help raise the rate of price growth. It will be interesting to see if Powell will tread a similar path and given the typical method of committee members preparing the ground for any changes in policy from the governor through their public views, it is likely we will see an estimate of when rates will rise from a member well ahead of Yellen herself.