Euro area manufacturing PMIs are due for release today

Market Movers

• Euro area manufacturing PMIs are due for release today. Focus will be on the first estimates in Italy and Spain. The Italian figure has increased to the highest level since 2011, while the Spanish figure has declined for two months in a row. We look for an improvement in the Spanish PMI and a small setback in the Italian.

• In the UK we expect PMI manufacturing to increase marginally to 52.2 in August, from 51.9 in July. This should follow as the scope for increases is limited due to the strong GBP, which puts pressure on the manufacturing sector in the UK.

• The German and euro area unemployment rates are due for release and should both remain unchanged. The euro area unemployment rate has declined since mid-2013 despite modest GDP growth. A pick-up in activity is likely to imply it will approach its structural level quickly.

• We expect US manufacturing ISM to fall to 52.2 in August from 52.7 in July. The decline should follow as data show a significant inventory build-up in both the manufacturing and retail sectors in Q2. While demand continues to look solid and the fall in energy prices should boost private consumption, we believe an inventory correction is due. Coupled with the negative impact of a stronger USD and general increase in uncertainty, the ISM manufacturing index could weaken short term.

• In Sweden we forecast manufacturing PMI to drop to 54.5 and in Norway we expect an increase to 47.5. For more on Scandi markets see page 2.

Selected Market News

Chinese official manufacturing PMI in August declined to 49.7 (consensus: 49.7) from 50.0 in July and hence reached its lowest level for three years. The Caixin/Markit manufacturing PMI in its final release in August declined to 47.3 (revised up from 47.1) from 47.8 in July. The official non-manufacturing PMI in August declined slightly to 53.4 from 53.9 in July suggesting that the non-manufacturing Industry is holding up relatively well. Overall the Chinese PMIs suggest downward pressure on particularly the manufacturing sector but so far it does not suggest a severe deterioration in growth in the wake of the recent turmoil in the stock market.

In June, US crude oil production dropped 100kb/d to 9.3mb/d according to data released by the US Energy Information Administration yesterday. Furthermore, production in all previous months this year was revised down between 40-130kb/d. The drop follows a 200kb/d decline in production from April to May and erases the gains in US production this year. The oil market rallied sharply on the news, which provides evidence that the OPEC-led oil price war is taking its toll on the US crude industry. The price of Brent crude rose close to USD54/bbl yesterday before falling back in tandem with Asian equity markets overnight.