Macroeconomics: The Day Ahead for 1 September

  • Manufacturing PMIs take centre stage as September gets under way; Japan & Australia CapEx, South Korea Trade, UK House Prices, German Retail Sales to digest; US jobless claims, Auto Sales, Construction Spending and Brazil Q2 GDP ahead; smattering of central bank speakers; UK, French and Spanish bond auctions
  • UK Gilts: torrid August puts new Conservative leader to hit the ground running on energy & cost of living crisis
  • Manufacturing PMIs: East Asia underperforms SE Asia; Europe, UK and US all seen lower, focus on contrast between US ISM and PMI; details more important than headline
  • US jobless claims seen little changed with little sign of significant loosening; jury out on ADP signal
  • US Auto Sales forecast to edge higher; anecdotal evidence and hefty adverse seasonal adjustment hint at downside risks

EVENTS PREVIEW

While Manufacturing PMIs/ISM dominate the day’s schedule, there is plenty more to digest from the overnight run: Japan and Australia Q2 CapEx, Korean Trade, Australian mortgage lending, German Retail Sales and UK Nationwide House Prices; further China lockdowns this time in the city of Chengdu will weigh on sentiment. Ahead there are also US weekly jobless claims, Auto Sales, Construction Spending and final Q2 Non-farm Productivity & Unit Labour Costs, along with Brazil’s Q2 GDP. The UK CFO inflation expectations survey and a smattering of central bank speakers (ECB, Fed, Norges Bank and Riksbank) top the events schedule, while France, Spain and the UK hold government bond auctions. The UK auction will be closely watched after long-dated gilt yields rose 75 to 81 bps on the month, the worst performance since the 1980s, and offering a clear market signal that whoever is chosen as the next Conservative party leader, they will need to hit the ground running with some credible plans to deal with the energy and broader cost of living crisis, if a further rise in UK risk premia is to be avoided; there is perhaps some risk of a buyers strike, though there should be a sufficient sale concession factored in after the spike in yields in recent days. Markets have clearly lost the fight with the Fed, with no better proof then the fact that the broad cross-asset price drop in August was the worst since December 1981. September should see rather greater differentiation across asset classes, with corporate credit perhaps the most vulnerable as September traditionally sees a surge in corporate borrowing after US Labour Day (marking the end of the holiday season), unfortunately just as the Fed’s QT reaches its maximum pace of $95 Bln/month. If bigger concessions for primary issuance are going to be required, this will in turn tighten financial conditions, and it will not just be the Fed keeping a close eye on any emergent disorderly trends.

** World – August Manufacturing PMIs **

Asian Manufacturing PMIs were distinctly mixed with China, Japan, South Korea and Taiwan all decelerating, while India remained strong despite a slight drop and SE Asia PMIs mostly picked up. The G7 flash Manufacturing PMIs were universally weaker, with the US above all dropping sharply, and the main question today is whether the generally more reliable ISM echoes that or not, with only a modest drop to 52.0 from 52.4 expected. Indeed, in broad terms details on sub-indices will require a good deal of attention, notably weakness in Employment metrics may in fact reflect an inability to fill positions rather than weaker labour demand, while a fall in supplier deliveries (i.e. delays) points to improving supply chains, and falls in price indices are on balance more of a positive after a sustained period of input price pressures. These will therefore need to be balanced against trends in Orders and Output in any evaluation.

** U.S.A. – Weekly Jobless Claims, Aug Auto Sales **

While yesterday’s weak ADP Employment implies loosening labour demand, it will be some months before any judgment on whether the ‘new’ methodology of that survey is any better than the old methodology, which was much better aligned with the Household rather than Payrolls. Today’s Initial Claims are seen little changed at 248K, and per se implying that while there has been some loosening of labour market conditions, the situation remains overall tight. Auto Sales are expected to inch up to a 13.5 Mln SAAR pace from July’s 13.35 Mln, but anecdotal evidence from industry specialists underlining continued problems with chips shortages, and a very weak report from Ford suggests some downside risks, particularly with the seasonal adjustment being harsh given that August is traditionally one of the strongest selling months. As housing indicators turn sharply lower, today’s Construction Spending data that are forecast to dip 0.1% m/m will also garner rather more attention.

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Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.

ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.                  

A subsidiary of Archer Daniels Midland Company.

© 2021 ADM Investor Services International Limited.

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