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Eurozone August flash services PMI 50.2 vs 50.5 expected

  
Analysis, Economy
  • Prior 51.2
  • Manufacturing PMI 49.7 vs 49.0 expected
  • Prior 49.8
  • Composite PMI 49.2 vs 49.0 expected
  • Prior 49.9

The manufacturing print beat estimates but still dropped to a 26-month low, while the services print continues to highlight a further decline in demand conditions – falling to a 17-month low. Meanwhile, the composite reading was slightly better than expected but still reflected a decline to a 18-month low. That signals a deeper contraction in the euro area economy in August than in July.

All in all, this points to a contraction in Q3 output and with services activity suffering already suffering ahead of the winter months, the outlook is rather bleak to say the least. S&P Global notes that:

“The latest PMI data for the eurozone point to an economy in contraction during the third quarter of the year. Cost of living pressures mean that the recovery in the service sector following the lifting of pandemic restrictions has ebbed away, while manufacturing remained mired in contraction in August, seeing another record accumulation of stocks of finished goods as firms were unable to shift products in a falling demand environment. This glut of inventories suggests little prospect of an improvement in manufacturing production any time soon.

“Declining output is now being seen across a range of sectors, from basic materials and autos firms through to tourism and real estate companies as economic weakness becomes more broad based in nature.

“The rebuilding of workforces following the pandemic is also losing steam, with firms increasingly reluctant to hire additional staff given falling new orders and relatively weak business sentiment.

“Businesses are at least continuing to see weaker rises in their costs, in turn increasing their selling prices at a softer pace. This should help to feed through to slower consumer price inflation later in the year, although it appears that any alleviation to the inflation situation is coming too late to provide any real support to demand. The remainder of 2022 is therefore looking to be one of struggle for firms across the eurozone.”

US Indices close sharply lower.

  
Analysis, US Market
  • Dow industrial average is closing down one 643.15 points or -1.91% at 33063.62-
  • S&P index is down -90.49 points or -2.14% at 4138.00
  • NASDAQ index is modestly in 23.63 points or -2.55% at 12381.58
  • Russell 2000 is down -41.60 points or -2.13% at 1915.74

All 11 sectors of the S&P move to the downside. The weakest included:

  • consumer discretionary’s, -224%
  • information technology, -2.78%
  • communication services -2.66%

The best of the worst included:

  • energy -0.25%
  • consumer Staples -1.11%
  • healthcare -1.38%

Leading the downside:

  • Intel, -4.35%
  • Salesforce, -3.64%
  • Disney, -3.46%
  • Microsoft, -2.94%

The best of the worst Dow stocks include:

  • P&G, -0.24%
  • J & J, -0.34%
  • Chevron, -0.44%
  • Verizon, -0.56%

OPEC+ reportedly miss output target by 2.9 mil bpd in July Reuters reports, citing two sources from the bloc

  
  Analysis

It is being reported that sanctions on some members and low investment by others hindered the bloc from producing as it should. For some context, the compliance with production targets stood at 546% in July – that compares with 320% in June.

In other words, OPEC+ is producing nowhere near their output targets (which have been increased over the course of the year) and even with Saudi Arabia and UAE believed to be the only ones with spare capacity, they aren’t pressing the pumps either. As a reminder, the bloc agreed to increase its output target by 100k bpd for September in what was a rather trivial gesture.

Bundesbank says German recession is looking increasingly likely

  
  Analysis
  • A recession is increasingly likely
  • Inflation will continue to accelerate and could peak above 10% this autumn
  • Upside risk for inflation is high
  • High degree of uncertainty over gas supplies and sharp price increases likely to weigh heavily on households, companies

That’s a fair assessment and one that isn’t quite clouded by political bias for the most part. It almost seems inevitable now especially when you look at how energy prices have gone parabolic in Europe. The set of PMI data releases tomorrow could be what it takes to tip the euro over the edge as it holds on the brink of parity at the moment.

Iran says “nothing is agreed until everything is agreed” on nuclear deal

  
Analysis, Politics

This has been dragging on for the longest of time and latest talks are that a deal is “imminent” again with reports suggesting that Iran has dropped demands related to delisting several companies tied to the IRGC – a key sticking point in discussions previously. But from the messaging above, it remains to be seen if we are actually seeing any real progress. Or if this is just another rodeo ride.

“China cuts rates again to shore up stumbling economy”

  
  Analysis

The headline to the post is a typical one I’m seeing from notes around the place. “Stumbling” is a mild word to describe the Chinese economy, its getting hit hard by the property sector imploding under debt loads, defaults, mortgage payment strikes and buyers pulling away in fear of further price falls (and holes too!). Consumer demand is drying up. Rolling COVID-related restrictions and lockdowns are not helping. Even the weather is not helping right now:

The People’s Bank of China cus its one year prime rate less than expected, and its five year more than expected:

  • China rate cuts: LPR 1 year 3.65% (from 3.7%) & 5 year 4.30% (from 4.45%)

World Bank economist warns of rising risk of 1970s & 80s style debt crisis

  
Analysis, Economy

n interest piece while we wait for financial markets to fully kick off for the week.

Japan’s Nikkei have excerpts from an interview with chief economist and director of the World Bank’s Prospects Group Ayhan Kose.

In a nutshell:

  • One of the risks we look at is this higher-than-expected rise in interest rates — so, the much faster tightening of financial conditions.
  • The other risk we look at is the risk of commodity prices being higher
  • and the third important risk we analyze is the risk of further COVID disruptions, the types of disruptions we saw in the case of China. These disruptions are quite important because they translate into the supply-side interruptions, weaker growth, as well as higher inflation.

Here is the link for more detail.

World Bank
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