Manufacturing PMIs, US Jobs, And Implications Of Harvey

As the markets head into the weekend, global equities are firmer, benchmark 10-year yields are mostly lower, and the dollar is consolidating after North American pared the greenback’s gains yesterday. Manufacturing PMIs from China, EMU, and the UK have been reported, while in the US, the August jobs data stand in the way of the long holiday weekend for Americans.  

China’s Caixin manufacturing PMI ticked to 51.6 from 51.1, confirmed the improvement seen in the official measure. The resilience of China’s economy is one of this year’s pleasant surprises. The years high was set at 51.7 in February, just below the cyclical peak last December at 51.9.  

EMU’s manufacturing PMI was unchanged from the flash reading of 57.4 after 56.6 in July. Export orders and firm domestic demand point underpin the European factories. In terms of country breakdown, German’s flash reading of 59.4 was shaved to 59.3. It is still quite strong. France was unchanged from the flash reading of 55.8. The new news was from Spain and Italy. Spain disappointed with a 52.4 manufacturing PMI, down from July’s 54.0. Italy offered an upside surprise, with a jump to 56.3 from 55.1, a new multi-year high. 

The news is unlikely to change expectations for next week’s ECB meeting. Many, like ourselves, expect the ECB to announce that its asset purchases will be extended though at a slower pace in 2018. Others expected a hint of this next week, but a formal decision may not be made until October. In terms of amounts, we have argued that by cutting the amount in half to 30 bln a month, it would give the central bank the maximum flexibility to stop in June. However, a reduction to 40 bln euros a month would likely mean the buying spills over into H2 18. 

News that the UK’s manufacturing PMI unexpectedly rose to 56.9 from a revised 55.3 (from 55.1 originally) helped lift sterling briefly before it slipped back. The cyclical high was recorded in April at 57.0. New orders were the strongest since May. Job creation was the highest in three years. The public barbs between the EU and the UK over Brexit may give a pre-taste of this month has in store, ahead of the October EU Summit.