In the US Markit PMI is expected to stay flat at a robust level

Market movers today

• Today’s Flash PMIs in Germany, France and the euro area will give more clues about the slowdown in the euro area. For the euro area we look for a slight rise in manufacturing PMI driven by Germany, as the pick-up in US and Chinese growth in Q2 should start to feed through to exports. For service PMI we expect a slight decline.

• In the US Markit PMI is expected to stay flat at a robust level, although there is slight downside risk as retail sales have slowed a bit recently. The US also releases existing home sales where a moderate increase is expected, as the NAHB housing survey points to higher sales activity. US initial jobless claims are also due today.

• In the UK retail sales are expected to rise 0.4%, continuing a decent development in consumer spending.

• In Norway we expect solid GDP growth in Q2 and this could force Norges Bank to raise its interest rate projection in its next monetary policy report.

Selected market news

The minutes from the 29-30 July Fed meeting turned out to be a bit more hawkish than the statement from the meeting, see Fed Minutes and Wall Street Journal. At the meeting a significant minority argued that in light of the faster-than-expected decline in unemployment and more balanced inflation risks, conditions were already right for the Fed to change its forward guidance (rates to stay low for ‘a considerable time after the asset purchase programme ends’) and signal an earlier interest rate increase. However, the majority remained more cautious, arguing that more time was needed to evaluate the strength of the recovery, but it also acknowledged that the forward guidance would have to be changed if the labour market continues to improve faster than expected.

In China the flash estimate for the HSBC manufacturing PMI in August declined to 50.3 (consensus: 51.6) from 51.7 in July, due to July - with the exception of exports - having been weaker than expected, seeFlash Comment - China: manufacturing PMIs appear to have peaked, possible stimulus limits downside risk, 21 August 2014. Hence, the Chinese economy appears to have lost some momentum again and an interest rate cut in China can no longer be ruled out.

However, in Japan the flash Markit/JMMA manufacturing PMI in August improved to 52.4 from 50.5 in July, suggesting that the Japanese economy might have started to rebound in the wake of the consumption tax hike in April.

In financial markets the USD has continued to strengthen in the wake of the hawkish Fed minutes. No dramatic impact on emerging market currencies overnight, although a hawkish Fed and weak Chinese PMI are a potential poisonous cocktail. Tenyear US bond yields are about 3bp higher on Fed minutes. The US stock market was able to shrug off the hawkish Fed minutes and Asian stock markets are mixed this morning with mainland China lower on the back of the weak PMI and Nikkei higher on a weaker yen and stronger PMI.