Sharp decline in China’s PMIs

A bad surprise in China, where the services purchasing managers’ index (PMI) fell well below the 50 level that separates contraction and expansion in activity in August. This suggests that the impact of the containment measures put in place to stem the resurgence of the pandemic was much stronger than expected. The manufacturing index also fell to 50.1.

Asian equity markets ignored these statistics, considering that the pandemic is already under control in China, and continued the upward movement triggered by Jerome Powell’s speech in Jackson Hole. Bond yields continued to fall, with the US 10-year now at 1.27%. Finally, the dollar is also weakening and is now trading at 1.1830 against the euro. Household consumption disappointed in France in July: -2.2% m/m, but Q2 GDP growth was revised from +0.9% to +1.1% q/q.

Today, we should watch out for the expected rise in eurozone inflation in August and the likely sharp fall in US consumer confidence, which could in total reinforce the rise in the EUR/USD exchange rate.