UK PMI services dropped to 50.6, PMIs suggests -0.1% GDP contraction in Q3

    UK PMI Services dropped to 50.6 in August, down from 51.4 and missed expectation of 52.0. Markit noted weaker rises in business activity and new work. Margins were squeezed by sharpest cost inflation since January. Growth projections also dropped to lowest since July 2016. All Sector Output Index dropped from 50.3 to 49.7, second sub-50 reading in three months.

    Chris Williamson, Chief Business Economist at IHS Markit, which compiles the survey:

    “Business activity in the service sector almost stalled in August as Brexit-related worries escalated, curbing spending by both businesses and consumers. So far this year the services economy has reported its worst performance since 2008, with worrying weakness seen across sectors such as transport, financial services, hotels and restaurants, and business-to-business services.

    “After surveys indicated that both manufacturing and construction remained in deep downturns in August, the lack of any meaningful growth in the service sector raises the likelihood that the UK economy is slipping into recession. The PMI surveys are so far indicating a 0.1% contraction of GDP in the third quarter.

    “While the current downturn remains only mild overall, the summer’s malaise could intensify as we move into autumn. Companies have grown increasingly gloomy about the outlook due to the political situation and uncertainty surrounding Brexit, adding to downside risks in coming months. With the exception of the slump in sentiment after the 2016 referendum, August saw service sector firms at their gloomiest since the height of the global financial crisis in early 2009.

    “Overall jobs growth has meanwhile also ground to a halt as worries about deteriorating order books and the gloomier outlook took their toll on firms’ appetite to hire, pointing to a weakening labour market and adding to the darkening outlook.”

    Full release here.

    Eurozone PMI services finalized at 53.5, GDP to rise just 0.2% in Q3

      Eurozone PMI Services was finalized at 53.5 in August, revised up from 53.4, slightly up from July’s 53.2. PMI Composite was finalized at 51.9, up from July’s 51.5. Among the member states, Italy PMI Composite dropped to 2month low at 50.3. German PMI Composite rose to 2-month high of 51.7. France PMI Composite rose to 9-month high of 52.9.

      Chris Williamson, Chief Business Economist at IHS Markit said:

      “The eurozone remained mired in a fragile state of weak and unbalanced growth in August,

      “Although up on July, the latest reading indicates that GDP will rise by just 0.2% in the third quarter, assuming no substantial change in September. Official data available so far for the quarter suggest growth could be even weaker.

      “The picture remains very mixed both by sector and country, highlighting how downside risks persist. A fierce manufacturing downturn, fuelled by deteriorating exports and most intensely felt in Germany, continues to be offset by resilient growth in the service sector, in turn propped up to a large extent by solid consumer spending in domestic markets.

      “The big question is how long this divergence can persist before the weakness of the manufacturing sector spreads to services and households. With jobs growth waning to the slowest since early-2016 a deteriorating labour market looks set to be a key transmission mechanism by which the trade-led downturn infects the wider economy. A sharp drop in business optimism about the coming year in the service sector, down to the joint-lowest for six years, suggests that companies are already braced for tougher times ahead.

      “We therefore expect to see renewed stimulus from the ECB in September as the central bank seeks to revive demand and stem the spreading malaise.”

      Full release here.

      Australia services returned to mild expansions

        Australia AiG Performance of Services Index rose 7.5 pts to 51.4 in August. That’s a return to mildly positive conditions following a weak month in July. Also, trading conditions for some businesses picked up, returning to similar levels seen earlier in the year.

        Looking at some details, there were expansions in four of eight services sectors in trend terms. However, among the business-oriented sectors, only finance & insurance reported positive results. Among the consumer-oriented segments, the ‘health, education & community services’ sector was strongest and the retail trade sector continued to perform very weakly.

        Full release here.

        China Caixin PMI services rose to 52.1, economy showed clear signs of recovery

          China Caixin PMI Services rose to 52.1 in August, up from 51.6 and beat expectation of 51.8. PMI Composite rose to 51.6, up from 50.9. Caixin noted that manufacturers and services provides both saw improved rates by business activity growth. The composite new orders expanded at the quickest rate for four months. Also, total employment increased for the first time since April.

          Commenting on the China General Services PMI™ data, Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said:

          “The Caixin China General Services Business Activity Index rose to 52.1 in August from 51.6 in the previous month, indicating a slight improvement in the services sector.

          “The gauge for new business stayed in expansionary territory and edged up, while the one for new export business dropped — although it remained in positive territory — suggesting that domestic demand was stronger than foreign demand. The employment measure jumped notably, pointing to the sector’s strengthening capability to absorb workers.

          “Both gauges for input costs and prices charged by service providers moved further into expansionary territory, implying an enhanced upward trend in prices. The measure for business expectations also stayed in positive territory and moved up, reflecting companies’ increasing confidence in their prospects.

          “The Caixin China Composite Output Index rose to 51.6 in August from 50.9 in the month before, pointing to a slight recovery in China’s economy.

          “While the gauge for overall new orders inched up, the one for new export business dipped into contractionary territory. The decline in overseas demand reflected the adverse shock of the Sino-U.S. trade conflict. The employment gauge returned to expansionary territory, hitting the highest since January 2015, suggesting an improvement in labor market conditions.

          “Both gauges for input costs and output charges dipped, reflecting a downward trend in overall prices. The measure for future output edged down, despite staying in positive territory, suggesting that business confidence remained subdued.

          “China’s economy showed clear signs of a recovery in August, especially in the employment sector. Countercyclical policies took effect gradually. However, the Sino-U.S. trade conflict remained a drag, and business confidence remained depressed. Still, there’s no need to be too pessimistic about China’s economy, with the launch of a series of policies to promote high-quality growth.”

          Full release here.

          Australia GDP grew 0.5% in Q2, strengthen the case for RBA rate cut

            Australia GDP grew 0.5% qoq in Q2, matched expectations. Annual growth slowed to 1.4%, way slower than 3.1% a year ago and was the worst since 2009. ABS Chief Economist for Bruce Hockman, noted “the external sector drove GDP growth this quarter, while growth in the domestic economy remains steady”. Net exports added 0.6% to Q2’s growth, reflecting strong exports of mining commodities. He added, “strength in mining related activity was seen across a number of measures in the economy”.

            Full release here.

            According to Westpac, today’s data strengthened the case for further RBA rate cut in the very near term. To achieve RBA’s growth forecasts of 2.5% for 2019, the economy needs to register 1.6% growth in the second half. That’s seen as out of reach while recent retail and housing data were also disappointing. Westpac expects another RBA cut in October.

            UK lawmakers overcome first hurdle to stop no-deal Brexit

              In a motion put forward by oppositions and Conservative rebels to take control of parliamentary schedules, the UK government was defeated by 328 to 301 votes. On Wednesday, those lawmakers will proceed to pass a law to force Prime Minister Boris Johnson to seek another Brexit delay, from October 31 to January 31, to stop no-deal Brexit.

              After the vote, Johnson warned, “I don’t want an election, but if MPs vote tomorrow to stop negotiations and compel another pointless delay to Brexit, potentially for years, then that would be the only way to resolve this.” He reiterated ” if I am Prime Minister, I will go to Brussels, I will go for a deal and get a deal but if they won’t do a deal we will leave anyway on 31 October.”

              It’s reported that all 21 Conservative rebels could face expulsion from the party as a result of the vote. The group include Nicholas Soames, the grandson of Britain’s World War Two leader Winston Churchill, and two former finance ministers – Philip Hammond and Kenneth Clarke.

              Separately, Irish Finance Minister Paschal Donohoe insisted that “a very significant political rationale” is needed for any further Brexit delay. He told national broadcaster RTE, “the European Council and the European Commission have said that were another extension to be looked for, there would have to be a very significant political rationale for it and it is yet to be seen what that rationale would be.”

              Fed Bullard urges 50bps rate cut to realign with markets

                St. Louis Fed President James Bullard said Fed’s interest rates are “too high” and a -50bps cut this month is needed to realign with financial markets. Bond yields dropped to record lows on expectation of Fed cut and intensifying risk of global trade war. Bullard said “in this situation I would respect the market signal,”

                He added, “we should have a robust debate about moving 50 basis points at this meeting…It’d be better in my mind to go ahead and get realigned right now”.

                Fed Rosengren: Don’t use up valuable space, no immediate policy action required

                  Boston Fed President Eric Rosengren said in a speech that the US economy remained “relatively strong”. And he saw not pressing need to cut interest rate s at the upcoming meeting. He said, “If the consumer continues to spend, and global conditions do not deteriorate further, the economy is likely to continue to grow around 2%”.

                  Also, “with continued gradual increases in wages and prices, then in my view, no immediate policy action would be required.” “I don’t want to use up that valuable space at a time where we actually think prices are pretty stable and the labor markets are pretty tight,” he added.

                  Nevertheless, Rosengren also admitted that risks are on the rise. “Clearly, there is a downside risk that trade or geopolitical problems could escalate, resulting in a much weaker situation than is currently anticipated in economic forecasts” However, “to date, these elevated risks have not become reality.” “This is a particularly good time to carefully watch incoming data to determine whether any additional policy adjustments are necessary to achieve” the dual mandate.

                  Rosengren’s full speech here.

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                  US ISM manufacturing dropped to 49.1, ended 34-month expansion

                    US ISM Manufacturing dropped to 49.1 in August, down from 51.2, below expectation of 51.3. The contractionary reading indicated the end of expansion that spanned 34 months. Looking at the details, new orders dropped to 47.2, down from 50.8. Production dropped to 49.5, down from 50.8. Employment also dropped to 47.4, down from 51.7.

                    ISM also noted: “Respondents expressed slightly more concern about U.S.-China trade turbulence, but trade remains the most significant issue, indicated by the strong contraction in new export orders. Respondents continued to note supply chain adjustments as a result of moving manufacturing from China. Overall, sentiment this month declined and reached its lowest level in 2019.”

                    Full release here.

                    Trump to China: 16 months PLUS is a long time to be hemorrhaging jobs and companies

                      In his tweets, US President Donald Trump suggested that China love to deal with new administration after next year’s election. However, he warned that “16 months PLUS is a long time to be hemorrhaging jobs and companies on a long-shot….”

                      Trump further warned that if he wins, “Deal would get MUCH TOUGHER! In the meantime, China’s Supply Chain will crumble and businesses, jobs and money will be gone!”

                      At the same time, he also repeated that “EU & all treat us VERY unfairly on Trade also.” And, Germany, and so many other countries, have negative interest rates, “they get paid for loaning money,” and our Federal Reserve fails to act! Remember, these are also our weak currency competitors!

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                      Canada PMI Manufacturign dropped to 49.1, slide in growth projections across the sector

                        Canada RBC Manufacturing PMI dropped to 49.1 in August, down from 50.2. Markit noted that production fell amid a sustained drop in new work to lowest since December 2015. Also, business optimism eased to a three-and-a-half year low.

                        Commenting on the PMI data, Tim Moore, Economics Associate Director at IHS Markit said:

                        “Canadian manufacturers reported a setback for business conditions in August, following the slight improvement seen during the previous month. New orders declined at the fastest pace for more than three-and-a-half years amid lower export sales, weakness in the automotive sector and reports citing softer demand from energy sector clients.

                        “August data also signalled a slide in growth projections across the manufacturing sector, with business optimism falling to its lowest level since early-2016. Concerns about the US-China trade war and rising global economic uncertainty were often cited by survey respondents.”

                        Full release here.

                        UK Johnson: Election have to conclude before Oct EU summit

                          UK Prime Minister Boris Johnson’s spokesman said he would hold election before EU summit on October 17, if decided to do so. And he denied that Johnson would push election beyond October 31 Brexit date.

                          The spokesman said, “the idea that polling day could be moved after the event and parliament has been dissolved is simply wrong, it’s not possible.” “We were clear that the election would have to be concluded before the European Council.”

                          Separately, European Commission spokeswoman Mina Andreeva said “Our working assumption is that there will be Brexit on Oct. 31”. And, “the best outcome would be a Brexit on the basis of the negotiated withdrawal agreement.” However, no-deal Brexit is a “very distinct possibility”.

                          Italy 5-Star/PD coalition calls for flexibility on excessive rigidity of EU budgets rules

                            Italy’s Five-Star Movement and Democratic Party have agreed to form new coalition. A 26-point program was published underpinning the government. And, supporters of Five-Star are now holding an online ballot for the proposed coalition.

                            Five-Star said that “this is a very delicate moment for the country. It must be tackled by focusing on the interests and needs of citizens, of the community that we all form together.”

                            One of the commitments of the program is to use the upcoming budget to boost the stalled without endangering public finance. Though, the coalition called for greater flexibility from EU regarding the “excessive rigidity” of existing budget rules.

                            Eurozone PPI rose 0.2% mom, 0.2% yoy in July

                              Eurozone PPI rose 0.2% mom, 0.2% yoy in July, matched expectations. Looking at industrial grouping, PPI rose 1.0% mom in the energy sector and by 0.1% mom for capital goods, while prices remained stable for durable consumer goods and non-durable consumer goods, and fell by -0.3% mom for intermediate goods. Prices in total industry excluding energy fell by -0.1% mom.

                              For EU28, PPI rose 0.3% mom, 0.6% yoy. The highest increases were recorded in Cyprus (+1.7%), Bulgaria (+1.5%) and Finland (+1.4%), while the largest decreases were observed in Belgium (-1.0%), the Netherlands (-0.4%) and Latvia (-0.3%).

                              Full release here.

                              UK Farage: Johnson is just reheating May’s Brexit agreement

                                Brexit Party Nigel Farage criticized that UK Prime Minister Boris Johnson is not opting for no-deal Brexit, but just reheating the old Withdrawal Agreement.

                                He said, “of course if Boris Johnson says we’re leaving, we’re going to have a clean break… then we, the Brexit Party, would put country before party and tell Mr Johnson that we want to help you in any way we can.”

                                “But I’m afraid that’s not what the prime minister wants to do and that was made very clear by his statement outside Downing Street last night. He is intent on reheating Mrs May’s Withdrawal Agreement.”

                                UK PMI construction dropped to 45.0, sector braced for a protracted slowdown

                                  UK PMI Construction PMI dropped to 45.0 in August, down from 45.3 and missed expectation of 46.7. It’s the fourth consecutive month of sub-50 contractionary reading. Additionally, new orders fell as fastest pace for over 10 years since March 2009. Construction output dropped for the fourth month in a row. And business optimism sank to its lowest level since December 2008.

                                  Tim Moore, Economics Associate Director at IHS Markit, which compiles the survey:

                                  “Domestic political uncertainty continued to hold back the UK construction sector in August, with survey respondents indicating that delays to spending decisions had contributed to the sharpest fall new work for over 10 years.

                                  “Construction companies noted that rising risk aversion and tighter budget setting by clients in response to Brexit uncertainty had held back activity, particularly in the commercial sub-sector. Commercial construction activity fell at a steep and accelerated pace during August, which more than offset the softer rates of decline in house building and civil engineering work.

                                  “Concerns about softening demand for new projects resulted in a fall in business optimism across the construction sector to its weakest since December 2008. This provides an early signal that UK construction companies are braced for a protracted slowdown as a lack of new work to replace completed contracts begins to bite over the next 12 months.”

                                  Full release here.

                                  UK Hammond: We will have the numbers

                                    Former UK Chancellor of Exchequer Philip Hammond said there should be enough rebel Conservative and opposition MPs to block no-deal Brexit in the vote today. The told BBC Radio that “I think we will have the numbers. I think there will be enough people to get this over the line.” “Many colleagues have been incensed by some of the actions over the last week or so,” he said. “I think there’s a group of Conservatives who feel very strongly that now is a time where we have to put the national interest ahead of any threats to us personally or to our careers.”

                                    Labour’s top legal policy chief Shami Chakrabarti also said “we’ve got to get a locked-in guarantee that Britain would not crash out of the EU in an election campaign period.” “We’ve also got to try as best as possible to ensure that it wouldn’t be possible for the sitting squatting prime minister in this period to set a general election and then change the date. The priority this morning is preventing this no-deal crash out.”

                                    UK lawmakers to block no-deal Brexit, Johnson might call elections

                                      A group of UK lawmakers are expected to put forward a vote on Tuesday to seize control of the parliamentary business. The target was to pass legislation to force a three month delay to October 31 Brexit date. If such case is pushed through, Prime Minister Boris Johnson is expected seek a vote to hold a general election the next day, on October 14.

                                      Without giving any details on his plan, Johnson said outside his office that “I want everybody to know there are no circumstances in which I will ask Brussels to delay: we are leaving on 31st October, no ifs or buts.” And, “we will not accept any attempt to go back on our promises,” he added. “I don’t want an election. You don’t want an election. Let’s get on with the people’s agenda.”

                                      Separately, Brexit Minister Stephen Barclay said in an interview yesterday that EU should be open to “creative and flexible” solutions to the Irish border backstop. He also reiterated that “we will leave the EU on October 31, whether with or without a deal.”

                                      RBA stands pat, Aussie pares losses as there is no further dovish turn

                                        RBA left cash rate unchanged at 1.00% as widely expected. Australian Dollar pares back some of earlier loss as the central bank doesn’t turn more dovish in the accompanying statement, even though easing bias is maintained. Instead, RBA just noted that “it is reasonable to expect that an extended period of low interest rates will be required”. And the board will continue to “monitor developments, including in the labour market, and ease monetary policy further if needed”.

                                        RBA expected growth to “strengthen gradually to be around trend over the next couple of years”. Main domestic uncertainty continues to be consumption outlook. However, wages growth remains “subdued” with “little upward pressure”. And the Australian economy can “sustain lower rates of unemployment and underemployment”. Inflation pressures also remain “subdued”. On the positive side, there are “further signs of a turnaround” in housing markets, especially in Sydney and Melbourne. Such stabilization is expected to support spending.

                                        RBA statement here.

                                        Released earlier, Australia retail sales dropped -0.1% mom in July, below expectation of 0.2% mom. Current account surplus widened to AUD 5.9B in Q2, above expectation of AUD 1.5B.

                                        China launched WTO complaint against US tariffs

                                          China’s Commerce Ministry said that it has launched a complaint at the WTO against the US over tariffs. No details were released regarding the case, but MOFCOM just said the tariffs affected USD 300B of Chinese exports. It also said the latest tariff actions violated the consensus reached by presidents of both countries at G20 in Osaka.

                                          Under WTO rules, the US will have 60 days to try to settle the dispute. Afterwards, China could WTO to adjudicate. If US is found to have broken rules, China would get approvals for trade sanctions. But even so, the process could take several years.