This morning will see the markets turn their attention to the release of HOCB’s composite PMI from France, Spain Germany and the Eurozone more generally. Here, investors will be looking to gauge an insight into the health of economic activity across the continent ahead of the ECB’s next rate decision on Thursday 14 September, where money markets are implying around a 27% chance of a 25bps hike. With such sentiments have seen markets consider whether the ECB’s current benchmark policy rate (at 4.25%) is at its terminal rate. The composite figure is expected to come in at 47 across the Eurozone, while France and Germany’s equivalent figure is expected at 46.6 and 44.7, respectively.
The back end of August saw a risk-off move across the Eurozone as soft PMI’s suggested a slowdown across the continent. For example, German PMI’s came in considerably softer-than-expected, indicative of the wider economic slowdown across Europe’s largest economy. Indeed, following the PMI print, the Chief Economist at Hamburg Commercial Bank stated that “Any hope that the service sector might rescue the German economy has evaporated. Instead, the service sector is about to join the recession in manufacturing, which looks to have started in the second quarter. Our GDP nowcast model, which incorporates the PMI flash estimate, now indicates a deeper fall of the whole economy than it did before, at almost -1%.” While the German economy has managed to crawl out of a technical recession (which lasted between Q4 2022 and Q1 2023), their growth for Q2 remained stagnant with the Bundesbank projecting output to remain largely unchanged in Q3. Meanwhile, French PMI’s also came in soft, with the compositive figure being representative of the greatest contraction since November 2020.
European Equities Slip Ahead of Data
As markets look towards the latest release of PMI data, European stocks have opened in the red with the pan-European Stoxx 600 falling around half-a-percent. This comes as the German DAX fell by around 60bps and the CAC 40 index has slumped over 120bps during the last 24 hours. While the Stoxx has seen some downward pressure this morning, Monday saw a flat close as the session delivered its highest level in three weeks as all eyes now look towards PMI data.
Markets Look to UK PMIs
Elsewhere, markets will turn their focus to UK PMIs released at 9:30 where the general market consensus is projecting at composite print of 47.9 while services are expected to come in at 48.7. The back end of August also saw the S&P UK PMIs retreat at fastest rate since January 2021. Here, S&P’s press release reaffirmed how UK private sector firms had shown a further decline in business activity, which constituted a buck to the trend of expansion seen over the last half-year.
This morning saw the Caixin China General Service PMI come in considerably softer-than-expected, falling to 51.8 against forecasts of 53.6. This marked the slowest service sector growth in eight months as export sales also fell (for the first time since December).
Analysts are increasingly monitoring the implications that the economic slowdown in China is having on the rest of Asia. With the Chinese economy flagging behind its historic rate of expansion, faltering demand from the world’s second largest economy is showing signs of slowing down neighbouring economies as fears of contagion mount. For example, Asia’s fourth largest economy – South Korea – saw manufacturing PMI levels contract for their 14th consecutive month as exports also dropped, owing in a large part to reduced demand from China. These figures are indicative of manufacturing across Asia which has been seen to be more or less stagnant. For instance, PMIs contracted for a fifth straight month in Japan while Malaysia’s GDP level rose at their slowest rate in just under two years. Elsewhere, factory activity also fell in Taiwan and the Philippines over August as exports between many Asian economies drops.
All eyes now turn to Beijing’s next monetary and fiscal moves, as markets look towards Chinese CPI data, released at the end of the week. Worries over China’s mid to long term economic outlook continue to make headlines with many economists considering the impact of country’s debt-ridden municipal governments, high levels of colleague graduate unemployment (currently around 20%), a fragile housing market and demographic pressures.
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