DOW could resume up trend on NFP miss

    US non-farm payroll report is the major focus today, which could also set the tone for the markets for the rest of September. Markets are expecting 750k job growth in August, slowed from July’s 943k. Unemployment rate is expected to drop from 5.4% to 5.2%. Average hourly earnings are expected to have strong 0.4% mom increase.

    Looking at related data, ADP private employment grew only 374k, well below expectation of 650k. ISM manufacturing dropped from 52.9 to 49.0, back in contraction. Four-week moving average of initial jobless claims, on the other hand, dropped notably from 394k to 355k. There is some prospect of a downside surprise today.

    At the Jackson Hole speech, Fed Chair Jerome Powell indicated that it could be “appropriate to start” tapering this year, without indicating the timing. This is seen as the center of the FOMC’s opinion. Hawks would need a set of job data that could match August’s to push for a tapering decision this month. Anything that misses the mark would more likely push the decision to November at least.

    As for market reaction, we’d pay attention to DOW, which is clearly lagging behind the record running S&P 500 and NASDAQ. Expectation of a later start of tapering could help push DOW through 35631.19 resistance. Larger up trend from 26143.77 should then resume for 38.2% projection level at 37159.81 in this case. If happens, that could set the stage for renewed selling in Dollar, Yen and Swiss Franc, with Kiwi and Aussie having a slight upper hand over others.

    China PMI services dropped to 46.7, PMI composite dropped to 47.2

      China Caixin PMI Services dropped sharply from 54.9 to 46.7 in August, well below expectation of 52.6. PMI Composite dropped from 53.1 to 47.2, first contraction since April 2020. Caixin said business activity and new orders both fell amid uptick in COVID-19 cases. Companies reduced their staffing levels slightly. Input costs rose at slower pace, output charges declined.

      Wang Zhe, Senior Economist at Caixin Insight Group said: “The Covid-19 resurgence has posed a severe challenge to the economic normalization that began in the second quarter of 2020. Both manufacturing and services shrank in August, with the latter hit harder than the former…

      “Official economic indicators for July were worse than the market expected, indicating mounting downward pressure on economic growth. Authorities need to take a holistic view and balance the goals of containing Covid-19, stabilizing the job market, and maintaining stability in prices and supply.”

      Full release here.

      Australia retail sales dropped -2.7% mom in Jul, NSW down -8.9% mom

        Australia retail sales dropped -2.7% mom in July, the largest decline this year. Ben James, Director of Quarterly Economy Wide Surveys, said: “Lockdowns and stay-at-home orders in many parts of Australia continued to impact retail trade in July, with many non-essential retail businesses closing their physical stores. In particular, the first full month of lockdown in New South Wales, following the Delta outbreak in June, saw retail turnover in the state fall 8.9 per cent. This was the largest fall of any state and territory since August 2020.”

        Full release here.

        Australia AiG construction dropped to 38.4, from healthy expansion to steep contraction

          Australia AiG Performance of Construction Index dropped sharply by -10.3 pts to 38.4 in August. Activity dropped -7.5 to 32.9. Employment dropped -11.8 to 49.0. New orders dropped -13.1 to 364. Input prices eased slightly by -5.4 to 91.8. Selling prices dropped -11.6 to 69.6.

          Ai Group Head of Policy, Peter Burn, said: “Australia’s construction sector has shifted from healthy expansion to steep contraction in a flash as restrictions in the face of COVID-19 outbreaks have closed sites and disrupted supply chains.

          “The impacts were concentrated in the south-east corner of the country although border closures by other states also contributed to supply chain disruptions and prevented the movement of construction personnel.”

          Full release here.

          US initial jobless claims dropped to 340k, continuing claims dropped to 2.75m

            US initial jobless claims dropped -14k to 340k in the week ending August 28, better than expectation of 351k. That’s the lowest level since march 14, 2020. Four-week moving average of initial claims dropped -12k to 355k, lowest since March 2020 too.

            Continuing claims dropped -160k to 2748k in the week ending August 21, lowest since March 14, 2020. Four-week moving average of continuing claims dropped -58k to 2855k, lowest since March 21, 2020.

            Full release here.

            Eurozone PPI at 2.3% mom, 12.1% yoy in Jul; EU up 2.2% mom, 12.2% yoy

              Eurozone PPI came in at 2.3% mom, 12.1% yoy in July, well above expectation of 1.2% mom, 10.9% yoy. For the month, industrial producer prices increased by 5.7% in the energy sector, by 1.9% for intermediate goods, by 0.7% for durable consumer goods, by 0.5% for capital goods and by 0.1% for non-durable consumer goods. Prices in total industry excluding energy increased by 1.0%.

              EU PPI came in at 2.2% mom, 12.2% yoy. For the month, industrial producer prices increased in all Member States except Malta, where they remained stable. The highest increases were recorded in Ireland (+20.6%), Estonia (+6.4%) and Belgium (+4.2%).

              Full release here.

              Swiss GDP grew 1.8% qoq in Q2, retail sales dropped -2.6% yoy in Jul

                Swiss GDP grew 1.8% qoq in Q2, slightly below expectation of 1.9% qoq. Total GDP was only -0.5% below the pre-crisis level seen in Q4 2019. Looking at some details, from production approach, manufacturing grew 0.9%, trade rose 4.8%, accommodation and food rose 48.9%, arts, entertainment and recreation rose 52.9%. From expenditure approach, private consumption rose 4.1%, government consumption rose 5.5%.

                Also from Swiss, real retail sales dropped -2.6% yoy in July, much worse than expectation of 0.2% yoy. CPI came in at 0.2% mom, 0.9% yoy in August, above expectation of 0.1% mom, 0.8% yoy.

                BoJ Kataoka: BoJ must strengthen monetary easing

                  BoJ board member Goushi Kataoka, a known persistent dove, warned that the Japan economy remained in a “severe state”. The economy is heading toward recovery but “not fast enough.

                  He added that risks to the outlook are skewed to the downside. In particular, “risks to consumption are heightening” due to surge in Delta infections. “There’s a good chance the impact of the pandemic may last longer than expected,” he added.

                  Kataoka also continued his push for more aggressive monetary policy easing. “Personally, I believe the BoJ must strengthen monetary easing,” he said, as inflation would remain distant from the 2% target for years.

                  Australia trade surplus hit record AUD 12.12B, as exports to China rose

                    Australia goods and services exports rose 5% mom in July to AUD 45.94B. The strong rise is exports was based on strong Asian demand for LNG and thermal coal, combined with sharply higher prices for iron ore. Exports to China also rose to record AUD 19.4B. Goods and services imports rose 3% mom to AUD 33.83B, due to sharp increase in parts and accessories for telecommunications equipment.

                    Trade surplus widened to AUD 12.12B, above expectation of AUD 10.1B., hitting a new record.

                    Full release here.

                    New Zealand terms of trade rose 3.3% in Q2 as export prices surged

                      New Zealand merchandise terms of trade rose 3.3% in Q2, well above expectation of 0.3%. Export prices for goods rose 8.3% while import prices rose 4.8%. Export volume for goods rose 2.9% while import volumes rose 4.4%. Export values rose 9.2% and import values rose 4.6%. Services terms of trade dropped -8.5%. Services export prices fell -1.6% while import prices rose 7.7%.

                      Terms of trade measures New Zealand’s purchasing power for import goods, based on the prices it receives for exports. An increase in terms of trade means that New Zealand can buy more import goods for the same quantity of exports.

                      Full release here.

                      ISM manufacturing rose to 59.9, corresponds to 4.8% annualized GDP growth

                        US ISM Manufacturing PMI rose from 59.5 to 59.9 in August, above expectation of 58.6. Looking at some more details, new orders rose from 64.9 to 66.7. Production rose form 58.4 to 60.0. However, employment dropped from 52.9 to 49.0. Prices dropped from 85.7 to 79.4.

                        ISM said: “The past relationship between the Manufacturing PMI and the overall economy indicates that the Manufacturing PMI for August (59.9 percent) corresponds to a 4.8-percent increase in real gross domestic product (GDP) on an annualized basis.”

                        Full release here.

                        US ADP jobs grew 374k only, downshift in recovery

                          US ADP employment grew only 374k in August, well below expectation of 650k. By company size, small businesses added 86k jobs, medium businesses added 149k, large businesses added 138k. By sector, goods-producing jobs grew 45k while service-providing jobs grew 329k.

                          “Our data, which represents all workers on a company’s payroll, has highlighted a downshift in the labor market recovery. We have seen a decline in new hires, following significant job growth from the first half of the year,” said Nela Richardson, chief economist, ADP.

                          “Despite the slowdown, job gains are approaching 4 million this year, yet still 7 million jobs short of pre-COVID-19 levels. Service providers continue to lead growth, although the Delta variant creates uncertainty for this sector. Job gains across company sizes grew in lockstep, with small businesses trailing a bit more than usual.”

                          Full release here.

                          ECB Stournaras: Recent jump in inflation is due to temporary factors

                            ECB Governing Council member, Bank of Greece Governor, Yannis Stournaras told Bloomberg, “according to most estimates, the recent jump in inflation is due to temporary factors related to various supply-side bottlenecks caused by the pandemic.”

                            “Wage developments and unit labor costs which determine the core of inflation do not show the same volatility as headline inflation,” he added. “On this evidence, I would advise caution regarding the course of inflation relative to our medium-term target.”

                            Eurozone unemployment rate dropped to 7.6% in July, EU down to 6.9%

                              Eurozone unemployment rate dropped to 7.6% in July, down from 7.8%, matched expectations. EU unemployment rate dropped to 6.9%, down from 7.1%.

                              Compared with June 2021, the number of persons unemployed decreased by 430 000 in the EU and by 350 000 in the euro area.

                              Full release here.

                              UK PMI manufacturing finalized at 60.3 in Aug, severe disruptions and material shortages eroded momentum

                                UK PMI Manufacturing was finalized at 60.3 in August, a tick down from July’s 60.4. Market said output growth slowdown exacerbated by input supply issues. Input cost and selling price inflation remained close to survey records.

                                Rob Dobson, Director at IHS Markit, said: “Severe disruptions to supply chains and raw material shortages eroded the growth momentum of UK manufacturing in August…. With all of these factors likely to persist for the foreseeable future, manufacturing could well see a further growth slowdown in the coming months…. The impact of supply issues is also feeding through to rapid price inflation… Business confidence remained elevated despite the widespread shortages as firms focused on the longer-term outlook and brought back furloughed workers.”

                                Full release here.

                                Eurozone PMI manufacturing finalized at 61.4 in Aug, another month of buoyant production

                                  Eurozone PMI Manufacturing was finalized at 61.4 in August, down from July’s 62.8. Markit said output and new orders sub-indices fell further from survey highs in March. Inflationary pressures eased, but remained substantial.

                                  Looking at the member states, readings remained generally strong: Netherlands (65.8), Ireland (62.8), Germany (62.6), Austria (61.8), Italy (60.9), Spain (59.5), Greece (59.3), France (57.5).

                                  Chris Williamson, Chief Business Economist at IHS Markit said: “Eurozone manufacturers reported another month of buoyant production in August, continuing the growth spurt into its fourteenth successive month. The overriding issue was again a lack of components, however, with suppliers either unable to produce enough parts or are facing a lack of shipping capacity to meet logistics demand.

                                  “These supply issues were the primary cause of a shortfall of manufacturing production relative to orders of a magnitude not previously recorded by the survey, surpassing the 24-year record deficit seen in July.”

                                  Full release here.

                                  Germany PMI manufacturing finalized at 62.6 in Aug, strong demand

                                    Germany PMI Manufacturing was finalized at 62.6 in August, down from July’s 65.9. Markit said suvery’s output index fell to its lowest level since August 2020. New orders continued to rise sharply, albeit also at a slower pace. Cost pressures remained historically elevated.

                                    Phil Smith, Associate Economics Director at IHS Markit, said:

                                    “While we continue to see strong demand for German goods, with growth in new orders still among the highest on record, production levels are being constrained as manufacturers grapple with supply chain problems. According to August’s data, growth in output has now fallen behind that of new orders to an extent previously unseen in over 25 years of data collection.

                                    “Supply-demand imbalances continue to push up costs at a historically elevated rate, and concerns that higher prices could discourage customers is one of the factors that has seen manufacturers’ expectations for future output fade to the lowest since last October.

                                    “Still, many goods producers are hopeful that conditions will have improved come next summer, and a further steep rise in employment levels shows that efforts are still being made to expand capacity and prepare for higher output in the future.”

                                    Full release here.

                                    France PMI manufacturing finalized at 57.5 in Aug, remains strong

                                      France PMI Manufacturing was finalized at 57.5 in August, down slightly from July’s 58.0. Markit said growth momentum eased as supply chain issues persisted. New orders rose at softest rate since January. Business confidence slides amid concerns about cost inflation.

                                      Joe Hayes, Senior Economist at IHS Markit, said:

                                      “Economic conditions in France’s manufacturing sector remain strong as we head towards the end of the third quarter, although further slowdowns in the rate of output and new order growth suggest we’re well past the peak.

                                      “Given the immense supply-side challenges being thrown at goods producers too, we can hardly be surprised to see production growth slowing, although during this time we’ve also seen backlogs of work accumulate at some pretty hefty rates. It’s likely that firms have sufficient work in the wings to keep producing at a decent rate. They’re certainly gearing for it, as employment growth is strong and accelerated in August, and purchasing activity continues to rise.

                                      “Fears are however starting to mount as to when the material shortages, delivery delays and intense price pressures will take their toll. Surveyed businesses cited all of these as threats to the outlook and business confidence subsequently slipped to a nine-month low.”

                                      Full release here.

                                      ECB de Guindos: Better economic performance to be reflected in new projections

                                        ECB Vice President Luis de Guindos told a Spanish newspaper, “the economy is performing better in 2021 than we expected, and this will be reflected in the projections that will be published in the coming days.”

                                        “If inflation and the economy recover, then there will logically be a gradual normalization of monetary policy, and of fiscal policy too,” he added.

                                        BoJ Wakatabe: Economic recovery is expected to become clear with vaccination progress

                                          BoJ Deputy Governor Masazumi Wakatabe said in a speech, the Japan economy has remained in a “severe state”. But the bank judged that “pick-up trend in the economy as a whole has been maintained, supported by positive developments in the corporate sector on the back of a firm recovery in overseas economies”.

                                          “Positive developments are likely to spread from the corporate sector to the household sector as the impact of COVID-19 wanes gradually, mainly due to progress with vaccinations,” he added. “The economic recovery is expected to become clear.”

                                          The key to realizing the positive outlook is “whether a virtuous cycle operates firmly”. That is, “whether an increase in domestic and overseas demand expands household income and corporate profits, and in turn leads to a further rise in spending”.

                                          Full release here.