Sample Category Title

The ISM Manufacturing Index marginally improved in August, rising to 47.2 and just short of expectations of a 47.5 print. As in July, only five industries reported growth for the month, but as some larger industries grew, a smaller share of manufacturing GDP shrank relative to last month (65% vs. 86% in July).

Demand continued to slow as the new orders index fell to 44.6, new export orders remained in contraction, and backlogs continued to shrink.

Output conditions remain subdued, as both the employment and production indexes remain in contraction, despite a slight uptick in the former.

Price pressures picked up again last month, with the index rising to 54.0, now well above the 52.8 reading that is typically associated with an increase in the Producer Price Index for Intermediate Materials.

Key Implications

The takeaway here is that the challenging conditions persist for the manufacturing sector. New demand continues to contract, and weakness remains broad based.

Despite the softness in the report there are reasons for optimism. The Fed is set to begin cutting interest rates, a key impediment to the sector's growth prospects. For manufacturers, the light at the end of the tunnel is starting to emerge, but with the pace of cuts likely to be gradual, the recovery will likely proceed in fits and starts.

Markets

Returning after a long weekend due to the Labour Day holiday, US investors see the glass half empty rather than half full looking forward to key US eco data to be published today (ISM manufacturing ISM) and later this week (Jolts openings tomorrow, ADP, jobless claims and services ISM on Thursday and payrolls on Friday). After a positive close yesterday, the EuroStoxx 50 eases 0.50%. The S&P 500 also ceded 0.7% at the open. Major US indices are nearing resistance of all-time top levels. If markets are currently priced for a ‘perfect’ soft landing; maybe both much better than expected data (and higher yields) as well as really negative surprises (recession fears, cfr early last month) might trigger volatility. A further decline in the oil prices also suggests lingering uncertainty on global (including Chinese) demand. Brent oil is touching a new YTD low near $ 74.6 p/b. After trading little changed this morning in Europa, the risk-off repositioning pushed EMU and US yields of a cliff this afternoon. US yields are falling between 3.5 bps (2-y) and -6.2 bps (30-y). Similar story for Bund yields (2-y -5 bps , 30-y -8.4 bps). Even so, we think the downside in ST EMU yields is still rather well protected. Last week’s sticky underlying inflation metrices and financial newswires reporting an on internal debate within the ECB on the neutral policy rate level for this easing cycle, currently makes investors cautious to fully discount additional 25 bps steps at the three remain meeting this year. In FX, the dollar doesn’t profit from the risk-off. DXY trades gains little changed. The euro also still looks vulnerable among the majors (EUR/USD 1.1055). The yen outperforms. The risk-off, a decline in core yields and the BOJ governor Ueda reconfirming the BOJs intention to raise interest rate further if the economy develops as expected, all further supported the yen (USD/JPY 145.55 from 146.9, EUR/JPY 161 from 162.65). Smaller, especially commodity related currencies (CAD, AUD, NZD, NOK) are fighting an uphill battle.

At the time of finishing this report, the US manufacturing ISM is holding most of last month’s decline (47.2 from 46.8). Details are mixed with orders declining further (44.6 from 47.4), but prices paid (54.0 from 52.9) rising. The decline in employment slows (46 from 43.4). In a first reaction, the risk-off repositioning continues.

An important reality check the UK Gilts market as DMO launched a new 2040 bond. Despite recent negative headlines on the state of UK public finances, the sale attracted a big orderbook of over £110 bln for a deal size of £8 bln. UK(LT) gilts today are trading more or less in line with their German counterparts. Sterling initially captured a better bid, but the unfolding risk-off sentiment prevent a new test of the 0.84 support area (currently 0.842).

News & Views

Swiss CPI remained unchanged in August compared to July. Inflation was 1.1% higher compared with August of last year (from 1.3% in July). Both were slightly lower than expected. Details showed higher prices for housing rentals and for clothing and footwear offsetting lower prices for transport, heating oil and international package holidays. Goods and services inflation were both flat on a monthly basis as well with goods prices 0.7% lower Y/Y and services prices 2.2% higher. Core inflation rose by 0.1% M/M to stabilize in Y/Y-terms at 1.1%. An upward revision to Swiss Q2 GDP data showed the economy growing by 0.7% Q/Q instead of 0.5% Q/Q (1.8% Y/Y from 1.5% Y/Y). Adjusted for sporting events, the first indication (0.5% Q/Q) was confirmed. Strong expansions in the chemical and pharmaceutical industry on the back of dynamic exports stood out. An expenditure breakdown pointed at below average private (+0.3%) and government (+0.2%) consumption and mixed investments. Net exports were again the key driver. The Swiss franc is slightly stronger after the data (EUR/CHF 0.94). The benign inflation outlook and stalling domestic demand cement the case for another September rate cut (discounted). Little maneuvering room from the SNB suggests by default CHF-strength as global monetary condition turn less restrictive.

French caretaker finance minister Le Maire warned that the budget deficit could rise from 5.5% of GDP to 5.6% this year instead of the forecasted decline (in April) to 5.1%. Le Monde reports that he recommends immediate savings totaling €16bn. The extra slippage comes from lower than expected tax revenues and from higher spending by local authorities. Time is running short as the 2025 budget bill needs to be finalized by mid-September and debated by Parliament from October 1. Especially since French President Macron still needs to name the next prime minister and future government in the wake of highly divided election results in early July snap legislative elections.

Graphs

USD/JPY: risk-off, lower core yields and BOJ reconfirming policy normalization all favour the yen.

UK 15-y yield: 2040 gilt auction attracting ample investor buying interest, despite fiscal challenges.

EUR/CHF: Swiss franc holding strong evens as soft inflation paves the way for September SNB rate cut.

Brent oil tumbling to YTD low as markets grown ever more uncertain on China/global demand.

US ISM Manufacturing PMI rose from 46.8 to 47.2 in August, below expectation of 47.8,, indicates a fifth consecutive month of contraction.

Looking at some details,, new orders fell from 47.4 to 44.6. Production fell from 45.9 to 44.8. But employment rose from 43.4 to 46.0. Prices also rose from 52.9 to 54.0.

ISM said: “The past relationship between the Manufacturing PMI® and the overall economy indicates that the August reading (47.2 percent) corresponds to a change of plus-1.3 percent in real gross domestic product (GDP) on an annualized basis.”

Full US ISM manufacturing release here.

The US dollar’s recovery continues, and other markets are starting to notice. The dollar index is up 1.4% to 101.7, having found support twice in the first half of last week before falling to 101.4.

The bounce has seen the dollar recover a quarter of the anti-rally from its peak in late July to the lows late last month. The momentum around current levels could be significant as the first retracement level (76.4% of the initial move) is centred here. At this point, there is more evidence to suggest that the dollar will at least attempt a higher rebound.

A 61.8% pullback is considered a classic market correction, which, in this case, is at 102.45. The fundamental driver of the dollar’s rally in recent days has been a repricing of the odds of a 50-point Fed rate cut in September. The odds of such an outcome are now estimated at 30%, down from 85% on 5 August (and 100% at the peak of the intraday sell-off).

The recent bounce is also telling, as the dollar bulls have managed to keep the market above the 200-week moving average and the RSI out of the oversold zone on the weekly chart. This looks like the start of a deeper bounce beyond the short-term shakeout.

Some uncertainty may remain until the release of the NFP later this week or even the inflation data on 11 September. Weakness in the macroeconomic data these days has the potential to send the dollar lower again after the chances of a sharp Fed reversal have risen.

However, in our baseline data scenario, which is in line with expectations, we see the odds of a regular 25-point rate cut in September and two more cuts before the end of the year rising. This seems like positive news for the dollar, which could gain around 1% from current levels.

The DXY’s rally may not stop there and could take it to the upper boundary of the 100.5-106.0 sideways range, where it has mostly traded since the beginning of the year.

Daily Pivots: (S1) 1.1050; (P) 1.1064; (R1) 1.1086; More....

No change in EUR/USD's outlook. While retreat from 1.1200 might extend lower, rally from 1.0665 is in favor to continue as long as 1.0947 resistance turned support holds. Above 1.1104 minor resistance will bring retest of 1.1200 first. Break there will target 1.1274 high next.

In the bigger picture, prior break of 1.1138 resistance indicates that corrective pattern from 1.1274 has completed at 1.0665 already. Decisive break of 1.1274 (2023 high) will confirm whole up trend from 0.9534 (2022 low). Next target will be 61.8% projection of 0.9534 to 1.1274 from 1.0665 at 1.1740. This will now be the favored case as long as 1.0947 resistance turned support holds.

Daily Pivots: (S1) 1.3126; (P) 1.3140; (R1) 1.3162; More...

GBP/USD is still extending the consolidation from 1.3265 and intraday bias stays neutral. While deeper retreat cannot be ruled out, downside should be contained well above 1.3043 resistance turned support to bring rebound. On the upside, above 1.3265 will resume larger up trend to 100% projection of 1.2298 to 1.3043 from 1.2664 at 1.3409.

In the bigger picture, up trend from 1.0351 (2022 low) is resuming. Next target is 38.2% projection of 1.0351 to 1.3141 from 1.2298 at 1.3364. For now, outlook will stay bullish as long as 1.2664 support holds, even in case of deep pullback.

Daily Pivots: (S1) 0.8489; (P) 0.8513; (R1) 0.8542; More…

Intraday bias in USD/CHF stays neutral at this point, and further decline is expected as long as 0.8540 resistance holds. Break of 0.8339 will resume the fall from 0.9223 and target 0.8332 low. However, considering bullish convergence condition in 4H MACD, firm break of 0.8540 will confirm short term bottoming, and turn bias back to the upside for 0.8747 resistance instead.

In the bigger picture, price actions from 0.8332 (2023 low) are currently seen as a medium term corrective pattern, with fall from 0.9223 as the second leg. Strong support could be seen from 0.8332 to bring rebound. Yet, overall outlook will continue to stay bearish as long as 0.9243 resistance holds. Firm break of 0.8332, however, will resume larger down trend from 1.0146 (2022 high).

Daily Pivots: (S1) 146.08; (P) 146.62; (R1) 147.47; More...

Intraday bias in USD/JPY is turned neutral with current retreat. But further rise will remain in favor as long as 143.43 support holds. Above 147.20 will target 149.35 resistance first. Firm break there will resume the rebound from 141.67 to 100% projection of 141.67 to 149.35 from 143.43 at 151.11, as the second leg of the corrective pattern from 161.94 high. However, break of 143.43 will bring retest of 141.67 low instead.

In the bigger picture, fall from 161.94 medium term top is seen as correcting whole up trend from 102.58 (2021 low). Deeper decline could be seen to 38.2% retracement of 102.58 to 161.94 at 139.26, which is close to 140.25 support. In any case, risk will stay on the downside as long as 55 W EMA (now at 149.47) holds. Nevertheless, firm break of 55 W EMA will suggest that the range for medium term corrective pattern is already set.

Yen staged a notable rebound today, joined by Dollar and Swiss Franc. In contrast, Australian Dollar is leading losses among commodity currencies. Risk-off mood appears to be taking hold, which is also evident in US futures, which point to a lower open as American markets return from the Labor Day holiday.

Market participants seem to be adopting a more cautious approach ahead of a series of key US economic data releases scheduled for this week, beginning with ISM manufacturing index today. Optimism had been building after Fed Chair Jerome Powell signaled that policy easing might be on the horizon. However, that optimism could quickly evaporate if the upcoming data disappoints, reigniting fears of recession.

Swiss Franc has found additional support against Euro, bolstered by stronger-than-expected Q2 GDP figures. However, its upside has been limited by a weaker-than-anticipated inflation reading for August. This mixed data leaves the door open for SNB's decision later this month, with uncertainty over whether they will opt for a 25 or 50 basis point rate cut. Until then, EUR/CHF pair is likely to be influenced by broader risk sentiment.

Technically, with 0.9455 support turned resistance intact. EUR/CHF's fall from 0.9579 is still in favor to continue. Break of 0.9351, and sustained trading below 61.8% retracement of 0.9209 to 0.9579 at 0.9350 will pave the way back to retest 0.9209 low.

In Europe, at the time of writing, FTSE is down -0.51%. DAX is down -0.29%. CAC is down -0.19%. UK 10-year yield is down -0.0445 at 3.989. Germany 10-year yield is down -0.021 at 2.322. Earlier in Asia, Nikkei fell -0.04%. Hong Kong HSI fell -0.23%. China Shanghai SSE fell -0.29%. Singapore Strait Times rose 0.50%. Japan 10-year JGB yield rose 0.0143 to 0.926.

Swiss GDP grows 0.7% qoq in Q2, above exp 0.6% qoq

Switzerland’s GDP grew by 0.7% qoq in Q2, exceeding expectations of 0.6% qoq and marking an improvement from Q1’s 0.5% qoq growth. When adjusted for sporting events, GDP still showed solid growth at 0.5% qoq, up from the previous quarter's 0.3% qoq.

This stronger-than-expected performance was largely driven by significant expansion in the chemical and pharmaceutical industries, which played a key role in lifting the overall economic output. However, growth across other sectors was uneven, reflecting underlying weaknesses in domestic demand.

Swiss CPI slows to 1.1% yoy in Aug, vs exp 1.2% yoy

Swiss CPI was flat mom in August, below expectation of 0.1% mom rise. Core CPI (excluding fresh and seasonal products, energy and fuel) rose 0.1% mom. Domestic products prices was flat while imported products prices fell -0.1% mom.

For the 12-month people, CPI slowed from 1.3% yoy to 1.1% yoy, below expectation of 1.2% yoy. Core CPI was unchanged at.10% yoy. Domestic product prices was unchanged at 2.0% yoy. Imported price prices fell from -1.0% yoy to -1.9% yoy.

BoJ's Ueda reaffirms commitment to further rate hikes if economic conditions allow

BoJ Governor Kazuo Ueda reiterated today that the central bank could continue raising interest rates if the economy and inflation develop as expected.

In a document presented to a government panel led by Prime Minister Fumio Kishida, Ueda highlighted that, despite the July rate hike, the economy are still solidly supported by current monetary policy, as rates are still significantly negative.

Additionally, members of the government panel, including business leader Masakazu Tokura, submitted a proposal urging careful management of macroeconomic policies, especially in light of the recent market turbulence. This highlights the importance of coordination between BOJ and the government to maintain economic stability as BoJ navigates its gradual shift towards higher interest rates.

NZIER expects Oct RBNZ rate cut, further easing hinges on demand recovery

The New Zealand Institute of Economic Research indicated today that it expects RBNZ to implement another interest rate cut during its October meeting. This follows RBNZ's decision in August to bring forward its easing cycle in response to "deterioration in economic outlook." However, NZIER notes that the pace of further easing remains highly uncertain, with a potential pause in November depending on how quickly demand recovers.

Weaker demand has become a significant concern for businesses, with 61% of firms identifying it as the primary constraint on their operations. This declining demand is also having an impact on the labor market, where there is now more slack as companies reduce hiring in response to the softer economic environment.

Looking ahead, NZIER forecasts GDP growth to remain subdued over the next year, contributing to further decline in inflation. The institute predicts that annual CPI inflation will fall back within RBNZ's target band by the end of this year, which underpins its expectation for another Official OCR cut in October.

However, the uncertainty surrounding the economic recovery suggests that any further rate cuts after October will be closely tied to the extent of demand recovery, with the November meeting likely to be a key decision point.

New Zealand's terms of trade improve in Q2 despite decline in export volumes

New Zealand's terms of trade saw a solid improvement in the second quarter of 2024, rising by 2.0%. This increase was driven by a 5.2% rise in export prices, which outpaced the 3.1% increase in import prices. However, the value of exports decreased by -1.5% to NZD 16.6 billion, largely due to a -4.3% drop in export volumes, even as higher prices provided some support.

Dairy products played a significant role in the export dynamics, with prices rising by 8.0%. Despite this, dairy export volumes fell sharply by -10%, leading to an 8-.0% decline in the overall value of dairy exports. The meat sector, on the other hand, performed better, with prices rising by 7.3%, volumes increasing by 4.1%, and the total value of meat exports up by 6.5%.

On the import side, the total value rose by 4.0% to NZD 18.9B, supported by a 3.2% increase in import volumes. Petroleum and petroleum products were notable contributors, with prices up by 4.0%. However, petroleum volumes declined by -8.0%, leading to a -4.4% decrease in the overall value of these imports.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 146.08; (P) 146.62; (R1) 147.47; More...

Intraday bias in USD/JPY is turned neutral with current retreat. But further rise will remain in favor as long as 143.43 support holds. Above 147.20 will target 149.35 resistance first. Firm break there will resume the rebound from 141.67 to 100% projection of 141.67 to 149.35 from 143.43 at 151.11, as the second leg of the corrective pattern from 161.94 high. However, break of 143.43 will bring retest of 141.67 low instead.

In the bigger picture, fall from 161.94 medium term top is seen as correcting whole up trend from 102.58 (2021 low). Deeper decline could be seen to 38.2% retracement of 102.58 to 161.94 at 139.26, which is close to 140.25 support. In any case, risk will stay on the downside as long as 55 W EMA (now at 149.47) holds. Nevertheless, firm break of 55 W EMA will suggest that the range for medium term corrective pattern is already set.

Economic Indicators Update

As the XAG/USD chart indicates today, the price of silver has dropped by over 5% in the past week. Bearish signs are also evident in the price of gold. According to Reuters, market participants are focusing on a series of economic data set to be released this week, which could influence expectations regarding a potential rate cut at the Federal Reserve’s September meeting.

Could the price of silver continue to decline? Technical analysis of the XAG/USD chart shows that since late May, the price of silver has been forming a structure resembling a fan of three expanding lines, marked in red.

Bullish Arguments:

→ The price has broken through the red median line and moved into the upper half of the fan.

→ The price is near the bullish breakout level of the median line, which may provide support.

→ On 2-3 September, the bearish momentum slowed down, indicating potential support, which could be strengthened by the lower boundary of the rising blue channel.

→ The price is at the 50% level of the bullish A→H impulse.

Bearish Arguments:

→ Near the psychological level of $30 per ounce, a bearish head and shoulders (H&S) pattern has formed on the chart, although the potential from the neckline break has almost been exhausted.

Therefore, it is possible that the bulls may try to regain control and make a new attempt to push the price towards the $30 level. Whether this scenario plays out will largely depend on the fundamental backdrop. On Friday, 6 September, at 15:30 GMT+3, US labour market data will be released – this event could have a significant impact on the price of silver.

Start trading commodity CFDs with tight spreads. Open your trading account now or learn more about trading commodity CFDs with FXOpen.

This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.