Flash PMIs to test growth resilience

In focus today

• In the euro area, August flash PMIs and Q2 negotiated wage data are released. PMIs are expected to remain broadly unchanged from July, with services at 51.6 and manufacturing at 51.9. The economy has shown resilience to the energy shock and with German fiscal easing increasingly supporting growth, we expect this to carry into Q3. Negotiated wage growth is expected to ease slightly to 2.4% y/y, after 2.5% y/y in Q1, based on national data and the ECB's wage tracker.
• In the UK, the August flash PMIs will give the latest read on whether the resilience has continued. As in the euro area, the UK economy has proved more robust than expected during the summer.  
• In the US, August flash PMIs are released. Activity continues to hold up well, with both indices expected to remain above the 50 level. Markets expect manufacturing to be unchanged at 53.9, while services are seen easing to 54.0 from 54.6 in July.
• In Sweden, focus turns to the July Labour Force Survey (LFS) unemployment figures. We expect unemployment to tick slightly lower from current levels, although the LFS has become increasingly volatile, particularly over the summer, making the release difficult to predict.
• In Denmark, the August consumer and business sentiment indicators are due. Consumer confidence edged down in July to -14.7 from -14.0, as lower willingness to buy and a weaker view of the current economic situation outweighed less pessimism about households' future finances. Business sentiment rose sharply in July to 105.4 from 101.0, driven mainly by higher confidence in retail and industry sectors.

Economic and market news

What happened overnight

In Japan, August flash PMIs and nationwide July inflation data were released overnight. The weak yen continues to support growth in Japan as new orders rise at the fastest pace in August. The manufacturing PMI edged higher to 55.1 from 54.7 in July and the service index increased to 52.3 from 51.2 in July. Inflation excluding fresh food increased to 1.8% in July from 1.6% in June in line with consensus, as energy subsidies are keeping it below the inflation target. The pressure for further tightening from the Bank of Japan is mounting to support the yen, but with domestic price pressures still modest, the decision is not straight forward.

What happened yesterday

In commodities, Brent crude traded above USD 94.5/bbl yesterday, reaching its highest level since late July, after the US escalated its economic pressure on Iran. President Trump warned of severe consequences for countries maintaining financial or commercial ties with Tehran, while Treasury Secretary Scott Bessent said the US would impose the "toughest sanctions in history". Bessent also suggested that a stronger sanctions push could reduce the likelihood of a renewed large-scale military escalation and that oil markets are misinterpreting the message. Details of the US measures are expected on Monday.

In Sweden, the Riksbank kept its policy rate unchanged at 1.75%, once again underwhelming market expectations with their forward guidance. As this was a smaller meeting without new forecasts, focus was on the press release and verbal guidance, where the Riksbank reiterated that the probability of a rate increase later this year remains largely unchanged from June. The added guidance, referring to the higher inflation prints over summer, marks a tiny step in a more hawkish direction but also suggests that the Riksbank wants to wait for more data. As we see it, the likelihood of a hike already in September has decreased.

In the US, the Philly Fed manufacturing index surprised to the upside in August, rising to 47.4 from 41.4. However, new orders and shipments weakened from July, though both remained at relatively strong levels. Weekly initial jobless claims came in lower, although continuing claims edged higher, giving overall positive signals.

In Norway, Norges Bank's Q3 Expectations Survey sent a somewhat mixed signal. CEOs' 12-month inflation expectations rose to 4.2% from 4.1%, while 2-year expectations increased to 4.6% from 4.1%. This gives little support to Norges Bank's call for signs that inflation pressures are easing, although the survey was conducted before the low July inflation print. However, the details were softer. Inflation expectations among other participants edged lower, labour unions lowered wage expectations and employment expectations fell. All participants now expect lower wage growth than Norges Bank's forecast from the June MPR.

In Denmark, Q2 GDP growth came in at 0.3% q/q, somewhat below our expectation of 0.5%, after the very strong 1.5% in Q1. The y/y growth rate slowed to 4.6% but remains high by historical standards. Industrial production was again the main growth driver, although the composition shifted, with wind turbines appearing to take over from pharmaceuticals as the key driver, at least temporarily.

Equities: Equities continued to slide yesterday, with the S&P 500 down 0.9% and ~2% below last week's all-time high. The drivers behind the decline shifted, however. Health care was the worst-performing sector, giving back part of the strong rally seen in the previous session. Consumer-related sectors, including staples and discretionary, also underperformed markedly. Walmart came under pressure following weaker sales growth, its slowest in more than six years, combined with a softer Q3 outlook. Meanwhile, semiconductors rebounded slightly after a difficult week, while software performance moderated. Real estate was among the best-performing sectors. Overall, the market lacked a clear directional rotation, with neither cyclical versus defensive nor value versus growth dynamics dominating trading. US futures are little changed this morning.

FI and FX: US yields moved higher yesterday, reversing much of the initial effect after Bessent's announcement on Wednesday of increased buybacks from the US Treasury. EUR/USD has also moved back to below 1.17. We caution against overstating the impact of the buyback announcement, with US fiscal consolidation being a long way off. Yesterday's Riksbank announcement yet again underwhelmed market expectations, and with ECB seemingly set to deliver a rate hike in September, the policy rate gap will then widen to 75bp, which would likely increase the pressure on the SEK further. The focus today is on the flash PMI releases from Europe and the US.