MNI US OPEN - European Services PMIs Weaker than Expected

NEWS

UK (The Times): Rishi Sunak to Delay Cabinet Reshuffle Until Later in Year

Rishi Sunak is expected to delay a full cabinet reshuffle until the winter after deciding to make limited changes to his top team before parliament’s return next month. He will carry out a larger restructure of his key ministers later in the year, in order to appoint his top team for the run-up to the general election. This move is expected to result in considerable changes to the cabinet.

UK (BBG): British Small Businesses See Sales Sink by 20%, New Data Shows

Sales at Britain’s small businesses collapsed by more than a fifth over the past year as customers cut back in the face of soaring inflation and rising interest rates, according to new research by accounting software provider Sage. Figures drawn from data on 85,000 small- and medium-sized companies using Sage’s platform showed the sector is struggling, with revenues, profits and cash balances all falling in recent months, raising concerns about the Britain’s growth prospects.

SPAIN (MNI): PP's Feijo Offered First PM Investiture Vote, Likely Next Week

Leader of the centre-right Popular Party (PP) Alberto Nez Feijo has been offered the first opportunity to hold a prime ministerial investiture vote in parliament following talks between King Felipe VI and party leaders on 21/22 August. While Feijo is not expected to be able to cobble together enough support in either investiture vote (176 required in the first, a simple majority in the second held 48 hours later), a communique from the Palace of Zarzuela stated that it was 'customary' for the leader of the largest political group in the Congress of Deputies to be offered the first investiture vote.

CHINA (BBG): Xi Skips Speech Defending China Economy at BRICS Business Forum

President Xi Jinping failed to attend a business forum in South Africa where he was expected to deliver a speech defending China’s economy and its support for emerging markets, as fears mount that the Asian nation’s struggles could cause global turbulence. According to a public schedule, the Chinese leader was set to address the BRICS Business Forum on Tuesday, after meeting with South African President Cyril Ramaphosa earlier that day. Instead, delegates were greeted on stage by Commerce Minister Wang Wentao, who read the speech without giving an explanation for Xi’s absence.

JAPAN (BBG): Kishida Pressured to Spend More Despite Rising Debt Cost

Japan’s Prime Minister Fumio Kishida is facing pressure to increase spending, even as bond yields at a nine-year high and earlier political promises test his ability to secure further funding for the world’s most indebted developed economy. Kishida pivoted away from his previous stance Tuesday by scrapping September-end plans to stop subsidies that cap gasoline prices. He also pledged to consider fresh economic measures to help households and businesses deal with inflation next month.

RUSSIA/UKRAINE (BBG): Russia Attacks Ukraine’s Danube Facilities Again and Wheat Gains

Russian drones struck Ukrainian grain infrastructure near the Danube River, the latest in a raft of attacks on the waterway that’s vital for getting Ukraine’s exports out to markets now its Black Sea ports are shut. A storage and cargo complex near the Danube was damaged by a Russian drone overnight in the Odesa region, the city council said. Nine drones were shot down, it said. That follows a drone attack last week at a key port on the Danube, which damaged a silo.

RUSSIA (MNI): Air Force Chief Officially Removed from Post in Wake of Wagner Mutiny

State media has confirmed that erstwhile head of Russia's Aerospace Forces General Sergei Surovikin (nicknamed 'General Armageddon') has been officially removed from his post, with RIA reporting that Colonel-General Viktor Afzalov, head of the Main Staff of the Air Force, is temporarily acting as commander-in-chief of the Air Force. Surovikin was last seen in the aftermath of the failed Wagner PMC mutiny against President Vladimir Putin delivering a video address without insignia calling for an end to Wagner's actions.

COMMODITIES (BBG): LNG Strikes in Australia Loom If No Progress in Talks Wednesday

Talks to avoid strikes at Australia’s biggest liquefied natural gas export terminal began Wednesday morning, with the threat to supply set to continue rocking global markets for the fuel. Woodside Energy Group Ltd. and officials representing workers at its North West Shelf LNG facility have started discussions in Perth to negotiate pay and conditions, according to people with knowledge of the matter. Talks are expected to continue until the evening. The Offshore Alliance, a group representing two major labor unions, previously said that it will move forward with strikes as early as Sept. 2 if a deal isn’t reached on Wednesday.

COMMODITIES (BBG): Iron Ore Approaches Month-High Ahead of China Building Season

Iron ore gained for a fifth day to near its highest in a month, amid increasing speculation Chinese steel mills will ramp up output ahead of the nation’s usual pick-up in construction activity during September and October. The steel-making staple has jumped 12% since last Wednesday’s close as the market assesses dwindling iron ore inventories which may lead mills to restock. China’s slowdown has prompted calls for Beijing to inject more economic stimulus, particularly in its struggling steel-reliant property sector.

DATA

EUROZONE DATA (MNI): Germany Drags Down Euro PMIs, Hints of Softening IT/ES Services

Eurozone August flash PMIs unsurprisingly reflected the French and German reports released earlier, with weaker than expected services, and a surprising uptick in manufacturing. Amid weak demand, employment slowed to near-stall speed with services inflation ticking higher. Eurozone Manufacturing PMI rose to a 3-month high of 43.7 (had been expected coming into today to remain steady at July's 42.7), but Services fell much more quickly than had been expected to a 30-month low 48.3 (vs 50.5 survey, 50.9 prior). Overall Composite fell to a 33-month low of 47.0 from 48.6 in July and the 48.5 expected.

UK DATA (MNI): Services PMI at Joint Lowest Since Jan'21 Lockdown

PMI data showed the Services sector slipping back into contraction, with the services PMI dropping to 48.7, the joint lowest since Jan'21. Weak demand remains a concern, with the release noting that sluggish new orders were a particular drag on the private sector. S&P Global pin this on weak domestic economic conditions as well as high borrowing costs among survey respondents. On inflation, the PMI data showed pressures continued to moderate across August, evident in the slowest pace of rise in input costs for two-and-a-half years. This fed into average prices charged - the slowest rate of increase in over two years.

GERMAN DATA (MNI): "Stagflation" Evident in August Services PMI

As presaged by a weak French August Flash PMI 15 minutes prior, Germany's report showed more weakness in the Services sector than expected - contrasting with continued inflationary pressures, making for a "stagflationary" report. German Manufacturing PMI actually ticked up to to a 2-month high of 39.1 (vs expectations of remaining unchanged at 38.8 in July), but this was more than offset by Services PMI dropping to a 9-month low of 47.3 versus July's 52.3, and expectations that the sector would remain in expansionary territory at 51.5. The Composite reading dropped to a 39-month low (May 2020) 44.7 from 48.5 in July, vs expectations of a more modest dip to 48.3.

FRANCE DATA (MNI): Services Weaker in August, but Inflation and Job Gains Hold Up

France's flash August PMI report points to further deterioration in economic activity as we go through Q3, most notably with the Services index dropping for the 3rd consecutive month to a 30-month low 46.7 versus an acceleration to 47.5expected (from 47.1 Jul). While Manufacturing beat expectations by accelerating to a 5-month high 46.4 vs the expected 45.0 (45.1 Jul), overall Composite PMI was static at 46.6 vs the expected improvement to 47.1. Export orders fell sharply, continuing to present what the HCOB S&P Global report called a "considerable drag". That meant overall activity continued to contract at the quickest pace since Nov 2020.

AUSTRALIA DATA (MNI): PMI Data Signal Shrinking Q3 Private Sector Activity

The preliminary Judo Bank PMIs for August showed that private sector output continued to contract in August especially in the important services sector. The indices are portraying a weak economy consistent with the RBA on hold. The composite index deteriorated to 47.1 from 48.2 in July, the lowest since January 2022, as new orders shrank. Manufacturing is down slightly to 49.4 from 49.6 but services are down to 46.7 from 47.9.

FOREX: EUR/GBP Cements Bearish Break on Poor PMIs

• The EUR slipped alongside poor PMI data from France and Germany, with the services sector falling short of forecast and showing more broad-based economic weakness. The subsequent break lower in EUR/GBP put the cross to the lowest levels since last August, with prices piercing the key support at 0.8504 (the YTD low). A close at or below these levels would mark a bearish break and cement the downtrend posted off the mid-August high (with the 100-dma proving the key resistance in the cross). 0.8479 marks the next downside level, the 1.0% 10-dma envelope ahead of 0.8471, the Aug 29 '22 low.
• EUR/JPY extending corrective pullback on the PMIs, putting the cross through last week's lows of 157.66 as well as the 23.6% retracement for the Jul - Aug upleg. Next key level on the way lower: the 156.66 50-dma that's helped define the uptrend off the March lows. JPY the main beneficiary of the soft data this morning, but the USD also gaining and helping keep GBP/USD under pressure and at the lowest levels of the week so far.
• Meanwhile, UK PMI numbers showed weak demand via sluggish new orders as well as a further moderation in inflationary pressures, evident in the slowest pace of rise in input costs for two-and-a-half years.
• Prelim US PMI data takes focus ahead, with markets expecting manufacturing to hold below 50.0, while services holds just in expansion territory. New home sales data is set to follow alongside Eurozone consumer confidence. The speaker slate remains light, keeping focus on the beginning of the Jackson Hole policy symposium later in the week. Markets received confirmation earlier today that BoJ's Ueda would be in attendance.

BONDS: PMIs Trigger FI Rally

• This morning's disappointing flash PMIs from France, Germany, the Eurozone and the UK have set the tone in fixed income markets with fixed income rallying across maturity spectrums. Curves have actually bull flattened across EGBs and USTs while there has been a more parallel shift higher for the gilt curve (which has also seen the biggest moves of in excess of 12bp).
• Looking ahead this will increase market focus on the US flash PMI at 9:45ET / 14:45BST while we will also receive new home sales and the preliminary benchmark revisions to the establishment survey data from the BLS.
• TY1 futures are up 0-12 today at 109-14 with 10y UST yields down -6.1bp at 4.266% and 2y yields down -4.6bp at 5.002%.
• Bund futures are up 1.17 today at 132.28 with 10y Bund yields down -9.8bp at 2.544% and Schatz yields down -7.9bp at 3.002%.
• Gilt futures are up 1.49 today at 935.55 with 10y yields down -12.2bp at 4.519% and 2y yields down -12.1bp at 5.006%.

EQUITIES: Latest Recovery in E-Mini S&P Deemed Technically Corrective

A bearish theme in Eurostoxx 50 futures remains present and the latest recovery appears to be a correction. The contract has recently breached support at 4276.00, the Aug 8 and 15 low and cleared 4220.00, the Jul 7 low. This opens 4177.40, a Fibonacci retracement. Key short-term resistance is unchanged at 4420.00, the Aug 10 high. Initial firm resistance is 4341.10, the 50-day EMA. A bearish theme in the E-mini S&P contract remains intact and this week’s recovery appears to be a correction. Last week’s price action reinforces this theme. The move lower resulted in a break of the 50-day EMA and a breach of channel support drawn from the Mar 13 low. The Jun 26 low of 4368.50, was breached last Friday and attention is on 4344.28, a Fibonacci retracement. Initial firm resistance is at 4452.08, the 50-day EMA.

• Japan's NIKKEI closed higher by 153.55 pts or +0.48% at 32010.26 and the TOPIX ended 11.34 pts higher or +0.5% at 2277.05.
• Elsewhere, in China the SHANGHAI closed lower by 41.932 pts or -1.34% at 3078.402 and the HANG SENG ended 54.91 pts higher or +0.31% at 17845.92.
• Across Europe, Germany's DAX trades higher by 65.64 pts or +0.42% at 15782.35, FTSE 100 higher by 46.96 pts or +0.65% at 7323.88, CAC 40 up 31.89 pts or +0.44% at 7277.58 and Euro Stoxx 50 up 17.94 pts or +0.42% at 4282.21.
• Dow Jones mini up 133 pts or +0.39% at 34487, S&P 500 mini up 23.25 pts or +0.53% at 4423.75, NASDAQ mini up 105.75 pts or +0.71% at 15068.75.

COMMODITIES: Outlook for Gold Remains Bearish Despite Recent Gains

The uptrend in WTI futures remains intact and recent weakness appears to be a correction. Firm support to watch is unchanged at $78.33, the Aug 3 low. A clear breach of this level would signal scope for a deeper short-term retracement. For bulls, a resumption of gains would refocus attention on the next objective at $85.24, a Fibonacci projection. Moving average studies are in bull-mode condition that continues to highlight an uptrend. The outlook in Gold remains bearish and short-term gains are considered corrective. The yellow metal has breached key support at $1893.1, the Jun 29 low. The clear break strengthens bearish conditions and signals scope for $1865.8, a Fibonacci retracement. Moving average studies are in bear mode condition, highlighting current bearish sentiment. On the upside, initial firm resistance to watch is $1932.7, the 50-day EMA.

• WTI Crude down $0.46 or -0.58% at $79.33
• Natural Gas down $0.01 or -0.27% at $2.559
• Gold spot up $6.78 or +0.36% at $1904.13
• Copper up $1.8 or +0.48% at $380.65
• Silver up $0.35 or +1.5% at $23.7492
• Platinum up $1.37 or +0.15% at $925.07