European cash equity markets have begun the third-quarter on a solid footing with the Euro Stoxx 600 on course to log a third day of gains (FTSE +0.2%, DAX +0.7%, CAC +0.8%). Sector wise, basic resources stocks have outperformed the broader market again today after Chinese Caixin manufacturing PMI jumped to a six-month high overnight. Media stocks are also well ahead after French multinational Vivendi posted their strong second-quarter results and ITV saw their stock upgraded to ‘neutral’ from ‘sell’ at UBS. Switching to the bond markets, core EU debt has begun to drift lower as we approach the midway stage with Bunds and Gilts both nursing losses of around twenty-ticks while Treasuries are also slightly offside ahead of the US jobs report. The data slate this morning has been dominated by European manufacturing PMI figures and there were contrasting fortunes across the region. The UK manufacturing sector expanded at its fastest pace in five-months in August while Italy saw its fastest growth since February 2011, Spain and Sweden meanwhile saw their slowest growth since September 2016 and August 2016 respectively. The pan Euro Zone print was unrevised from the flash reading of 57.4 (Markit Chief Economist Williamson said the figures support another strong GDP reading in the third quarter).  Elsewhere, the Euro has seen some modest upside in recent trade after ECB Governing Council member Ewald Nowotny said we should not overdramatize the rise in the Euro. Vice President Constancio also broke purdah rules ahead of next Thursday’s ECB meeting as he noted that the strong worldwide reflationary phase that seemed likely at the beginning of the year has not materialised. Looking ahead, futures are pointing to a modestly higher open for US cash equity markets with the US August jobs report the main attraction for investors this afternoon. Also on tap, US and Canadian manufacturing PMI’s followed by Michigan Sentiment and ISM manufacturing.


Key Headlines/Data:

*  Euro Zone Manufacturing PMI (Aug F) 57.4 versus 57.4 flash/expected, previous 56.6

*  Commenting on the final Manufacturing PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

  • “The eurozone’s impressive manufacturing upturn regained momentum in August, with a summer surge in factory activity suggesting rising goods production will support another strong GDP reading in the third quarter.
  • “The recent strengthening of the euro may curb export growth from its current six-and-a-half year high, and optimism about the year ahead has cooled since earlier in the summer,

*  German Manufacturing PMI (Aug F) 59.3 versus 59.4 flash/expected, previous 58.1

  • PMI rebounds from July’s five-month low to 59.3
  • Stronger increases in output and new orders
  • Fastest growth of new export business since May 2010

*  French Manufacturing PMI (Aug F) 55.8 versus 55.8 flash/expected, previous 54.9

  • New orders rise to greatest extent since December 2010
  • Rate of jobs growth dips from July’s multi-year high but remains marked
  • Growth of purchasing activity sharpest in 75 months

*  Italian Manufacturing PMI (Aug) 56.3 versus 55.3 expected, previous 55.1 (Highest since February 2011)

*  Spanish Manufacturing PMI (Aug) 52.4 versus 54.4 expected, previous 54.0 (Lowest since September 2016)

*  UK Manufacturing PMI (Aug) 56.9 versus 55.0 expected, previous 55.1

  • Manufacturing PMI at four-month high of 56.9
  • Broad-based expansion seen across all product categories
  • Input price inflation accelerates for first time in seven months

*  Dutch NEVI Manufacturing PMI (Aug) 59.7, previous 58.9

*  Greek Manufacturing PMI (Aug) 52.2, previous 50.5

*  Irish Investec Manufacturing PMI (Aug) 56.1, previous 54.6

*  Norwegian Manufacturing PMI (Aug) 55.7 versus 56.9 expected, previous 57.3 revised to 57.3

*  Swedish Swedbank/Silf Manufacturing PMI (Aug) 54.7 versus 60.5 expected, previous 60.4 (Lowest since August 2016)

*  Swiss Manufacturing PMI (Aug) 61.2 versus 60.5 expected, previous 60.9

*  Swiss Retail Sales Y/Y (Jul) -0.7% versus +1.7% expected, previous +1.5% revised to 1.7%

*  Norwegian Unemployment Rate (Aug) 2.7 versus 2.7% expected, previous 2.8%

*  Italian GDP Data (Q2 F):

  • GDP Q/Q +0.4% versus +0.4% flash/expected
  • GDP Y/Y +1.5% versus +1.5% flash/expected

*  Greek GDP Data Y/Y (Q2 F) +0.8% versus +0.2% expected, previous +0.4%

*  UK Trade Minister Fox said the UK cannot be blackmailed into agreeing on the cost of leaving the European Union.

*  ECB’s Nowotny said he does not see a perspective for higher rates . . . as long as we have low rates of inflation. He later added that we should not overdramatize the rise in the Euro.

*  ECB Vice President Constancio said the ongoing cyclical recovery in the euro area is now broader and more consolidated while it is clear that the recovery is becoming increasingly robust. He did not however that the strong worldwide reflationary phase that seemed likely at the beginning of the year has not materialised, adding that the tasks of normalising inflation and unemployment to acceptable levels continue to be difficult.