Active Day in Spite of North American Labor Day Holiday Closures

September 5, 2016

A less fearful mood surrounds the U.K. after the service sector purchasing managers index for the British economy shot up 6.5 points to a reading of 52.9, a 3-month high, in August. Britain’s composite PMI of 53.6 after 47.5 in July constitutes a 5-month high. Sterling touched a 7-week high and is 0.2% firmer than before the weekend. However, Prime Minister May warned of possible economic difficulties ahead.  The British Ftse is 0.2% softer, and the 10-year gilt yield slid 3 basis points.

The yen recovered 0.7% against the dollar. The 10-year JGB climbed three basis points, and the Nikkei advanced 0.7%. Despite dovish remarks from Bank of Japan Governor Kuroda, speculation persists that the BOJ may trim its bond-buying stimulus later this month.

Euroland’s composite purchasing managers index fell 0.4 points to 52.9 in August. This loss of momentum in the positive direction of activity was most pronounced in Germany whose composite PMI sank 1.1 points to a 15-month low of 53.3. Italy’s composite PMI dropped to a 3-month low of 51.9 despite a 6-month high in that economy’s services component. The French composite PMI increased 0.3 points to a 6-month high of 51.9, and the Irish and Spanish composite measures were also higher than in July.

In the euro zone services PMI, which dipped to a 3-month low of 52.8, business sentiment touched a 20-month low.

Markets continued to react to Friday’s U.S. jobs report, which wasn’t quite as good as anticipated.  As a consequence, somewhat smaller odds are attached to the likelihood of a federal funds rate hike later this month. The dollar has fallen 0.2% against sterling, 0.7% relative to the yen, 0.4% versus the loonie, 0.3% vis-a-vis the Australian and New Zealand monies, and 0.1% against the Swiss franc.  The dollar fell even more sharply against several emerging market currencies like the won and rand. The U.S. currency is unchanged, however, against the euro and yuan.

Leaders from the Group of Twenty continued their summit meeting in Hangzhou, China. Putin and Obama held a bilateral meeting there to discuss the Syrian situation among other things. Obama said the U.S. would address trade with the EU before seeking its post-Brexit trade relationship with Great Britain. Uncertainty continues to swirl around the meaning of Prime Minister May’s mantra that “Brexit means Brexit.”

Equities climbed 1.8% in Hong Kong, 1.7% in Singapore, 1.1% in Australia, Taiwan and South Korea, and 0.8% in New Zealand. Much smaller gains occurred in South Korea, India, China and Indonesia, and a sizable 1.9% drop was sustained in Thailand. In Europe, stocks are currently up 0.4% in Spain, 0.3% in France, Switzerland and Italy and 0.2% in Germany.

The U.S. and Canada are observing Labor Day holidays.

The 10-year German bund yield dipped a basis point.

West Texas Intermediate crude oil rallied 1.6% to $45.13 per barrel against the backdrop of ongoing talks between the Saudis and Russia over how to support the price. Gold rose 0.3% to $1,330.80 per ounce.

Other European data released today were more upbeat than the aforementioned PMI.

  • The Sentix, a measure of investor confidence in the eurozone, rose to a September reading of 5.6 from 4.2 in August and 1.7 in July but remained below June’s 9.9 level.
  • Euroland retail sales jumped 1.1% in July, about double the expected increase, and were 2.9% greater than a year earlier.
  • Retail sales in Romania, the Czech Republic and Hungary respectively recorded on-year growth in July of 13.8%, 5.1% and 2.7%.
  • Swedish industrial production advanced 4.2% in the year to July, beating expectations.
  • Irish Industrial production increased 7.4% on year in July.

In other purchasing manager survey results released today,

  • Japan’s services and composite scores fell 0.8 and 0.3 points to 2-month lows of 49.6 and 49.8.
  • China’s services PMI rose 0.4 points to a 2-month high of 52.1, but softer manufacturing depressed the composite PMI to a 2-month low of 51.8 compared to July’s 22-month high.
  • The Australian Performance of Services index plunged 8.9 points to a 21-month low of 45.0.
  • Non-oil PMIs touched a 1-year high of 56.6 in Saudi Arabia but a 4-month low of 47.0 in Egypt and a 2-month low of 54.7 in the United Arab Emirates.
  • Lebanon’s private-sector PMI fell 0.5 to a 2-month low of 45.0, signaling a solid rate of contraction. As with all PMI surveys, the 50 level divides expanding from contracting activity.
  • Hong Kong’s private PMI improved to a 14-month high but was still a bit under 50 at 49.0 in August.
  • Singapore’s private PMI recovered 1.6 points to a 2-month high of 52.3.
  • India’s services PMI of 54.7 compared to a score of 51.9 in July and indicated the fastest growth rate of activity in 3-1/2 years. India’s composite PMI was also at a 42-month high (54.6).
  • Russian services and composite PMIs touched 3-month lows of 53.5 and 52.9.
  • Standard Bank reported a South African PMI of 49.8, 0.1 point lower than in July but 0.2 points above June’s level.

Japanese labor cash earnings in July were 1.4% greater than a year earlier, beating expectations.

Corporate profits in Australia bounced back 6.9% last quarter from a 4.4% drop between the final quarter of 2015 and the first period of 2016.

Turkish PPI and CPI inflation decelerated in August to 8.1% and 3.0%, respectively.

Copyright 2016, Larry Greenberg. All rights reserved. No secondary distribution without express permission.


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