Market news 6 September 2019

China

• The Caixin China General Services Business Activity Index rose to a 3-month high of 52.1 in August (July: 51.6, consensus: 51.7). Manufacturing was weaker than services, but ticked up into the expansion level at 50.4 (from 49.8 in July). New orders rose over the month, prompting stronger employment numbers, although business confidence remains depressed with the US-China trade conflict overhang. So far, Beijing have used a combination of fiscal stimulus and monetary easing to cushion the slowdown in growth – the IMF are projecting GDP growth of 6.2% this year.

Eurozone

• Revisions to previous numbers and the addition of Italian and Spanish numbers has left the Euro PMI composite at 51.9 for August (+0.1 since flash estimates, July: 51.5). Spain surprised to the upside, rising from 51.7 to 52.6 over the month, led by the services sector. Italy posted a weaker composite reading of 50.3 (July: 51.0), making it the only country indicating a slowdown in overall growth over the month. The services sector was the principal reason for disappointment in Italy (August: 50.6), although the Italian economy has been broadly stagnant for the last year (Q2 GDP -0.1% year on year).

UK

• The UK composite PMI reading dropped to 50.6 in August (July: 51.4, consensus: 51.0), whilst the business optimism index fell to the lowest level since July 2016 as Brexit uncertainty persists. The readings were poor across the board, with new export orders, factory output and employment growth all declining over the month. PMI compiler IHS have forecast that the economy will shrink for a second consecutive quarter to September (-0.1%), raising concerns that a technical recessionary period is possible.

US

• The US ISM Manufacturing Index declined to 49.1 in August (July: 51.3, consensus: 51.2), the first month of contraction reported since August 2016. 9 of the 10 subindexes were reported as contracting, with production (-1.3 points) and new orders (-3.6 points) among the worst reported. Manufacturing growth has been in steady decline since September last year, but the fall into contractionary territory will likely heighten fears of further weakness into the last quarter of the year.
• The US non-manufacturing ISM unexpected jumped TO 56.4, leaving the August composite ISM 2.2pt higher vs the July reading at 55.6, a level historically associated with above-trend GDP growth.
• August nonfarm payrolls were a touch weaker than expected at 130k vs an expected 160k with -20k of revisions to the prior two month’s readings, but still well above the level required to keep the unemployment rate stable. This was unchanged at 3.7%.
• Equities continued to recover from the early August trade war-related slump, which has now largely been eradicated.