Key points

---WTI price loses ground due to indications that a political dispute in Libya, may be coming to an end.

---Libya's two legislative bodies agreed to jointly appoint a central bank governor, easing the conflict over Oil revenue.

---Oil prices fell as the Institute for Supply Management showed that US manufacturing remained sluggish.

West Texas Intermediate (WTI) Oil price extends its losses for the second successive day, trading around $69.40 per barrel during the Asian session on Wednesday. The drop in crude Oil prices is driven by the potential resolution of a political dispute that has halted Libyan exports and concerns over slowing global demand growth.

Reuters reported that Libya's two legislative bodies agreed on Tuesday to jointly appoint a central bank governor, potentially easing the conflict over control of the country's Oil revenue that sparked the recent dispute. The potential agreement to restore the Oil supply could result in more than 500,000 barrels per day returning to the market.

Market sentiment was further dampened by data from the Institute for Supply Management, which showed that US manufacturing remained sluggish, despite a slight improvement in August from an eight-month low in July. The US ISM Manufacturing PMI inched up to 47.2 in August from 46.8 in July, falling short of market expectations of 47.5. This marks the 21st contraction in US factory activity over the past 22 months.

The world's biggest crude importer China showed that manufacturing activity fell to a six-month low in August, with factory gate prices dropping significantly. This has prompted Chinese policymakers to push forward with plans to increase stimulus for households.

Additionally, Oil prices are under pressure from the Organization of the Petroleum Exporting Countries and their allies (OPEC+) plans to increase production in the coming quarter. OPEC+ is poised to move forward with a planned increase in Oil output starting in October. Eight OPEC+ members are set to raise production by 180,000 barrels per day (bpd) next month.

Source: FXSTREET

Rise & Whine: More of the Same from August ISM

This is not the sort of improvement you want to see if you are rooting for a turnaround in the factory sector. Only two of the five components that feed into the headline rose in August. Employment (up 2.6 to 46.0) and inventories, which rose twice as much (+5.8 points to 50.3). Production, supplier deliveries and new orders were all lower. The most disconcerting development is the 2.8 point drop in new orders, which took this leading indicator to its lowest since May of last year.

While a sub-50 print may indicate a discouraging backdrop for the factory sector, it takes an even lower reading to signal outright recession for the broader economy; 42.5 in fact, according to the ISM. So today’s report for August activity is broadly consistent with a theme that has been in place for the better part of the past two years: the economy is still expanding even if the factory sector is not.

Our way of describing this dichotomy has been that the combination of pulled-forward demand for durable goods during the pandemic and higher financing costs has meant that Fed rate hikes have bitten harder in this sector than most others. Both of these dynamics are transitioning in a way that we expect to eventually be favorable for the sector. Even long-lived durable goods need replacing and items purchased during the early days of the pandemic are now four-and-a-half years old and rates are apt to start coming down, perhaps as soon as later this month. But for August, it was more of the same for manufacturing.

In general manufacturing activity remains constrained. The new orders component slid nearly three points to the lowest reading since May of last year, and the only of the six largest industries to report an increase in new orders was the computer & electronic products—which has been a notable bright spot in an otherwise flagging sector. The measure of current production also slid deeper into contraction last month.

As mentioned, most of the strength came from inventories. While inventories can be volatile, it’s the first time this component crested above 50 since early 2024 and the release notes manufacturers adjusting to lower output levels and timing issues. In other words, this inventory was unintended and a consequence of slowing demand. Without the inventory build, the overall ISM composite index would have seen a decline twice as large in August.

Slower activity continues to hold back hiring. We often look to the ISM surveys for a hint of what to expect from the coming employment report, and although the ISM’s have been more volatile than broader hiring figures, the signal has been clearly one of lost momentum. While employment was less negative in August, it was still consistent with a broad contraction in hiring in August. Only three of 18 industries reported employment growth in August according to the release, and one of them (food & beverage) was said to do so due to seasonal reasons. The employment component has only been above 50, or consistent with an expansion in hiring, for just one month of the year.

The main event this week comes with Friday’s employment report. We forecast a partial rebound in hiring and reversal of the unemployment rate from July’s increase. With the labor market now largely having normalized from its pandemic-related distortions the only question that remains is by how much will the Fed cut rates in two weeks at its September meeting. Recent public comments of Fed officials indicate few currently see the need for a 50 bps reduction, and we expect Friday’s jobs report will likely need to come in weaker than July for such a large rate reduction to kick off the Fed easing cycle.

Subway is tapping the asset backed securities market for the second time this year as the sandwich restaurant chain looks to borrow $2.3 billion.

The company, which has the most restaurant locations of any chain in the US, was purchased by Roark Capital Group in a buyout that closed in April. In May, it sold $3.35 billion of bonds backed by assets including fees from its franchisees, the largest securitization of its kind.

Companies with a large network of chains, like gyms and fast-food franchises, often raise capital in the whole business securitization market. This pathway offers firms better rates in exchange for giving investors more control, which is doable because of the structure of the business model.

Subway’s latest asset-backed sale is being led by Barclays Plc and Morgan Stanley, according to people with knowledge of the sale. It includes restaurants worldwide. The transaction is refinancing a term loan. Subway also issued a variable funded note valued at $400 million earlier this year.

At its current size, the deal would be the fourth largest whole business securitization, after Subway’s other offering and two transactions from Dunkin’ Brands Group Inc. About a dozen whole business securitizations have already been sold this year totaling more than $8 billion, including Zaxby’s, a chicken finger restaurant chain, and Nothing Bundt Cakes, a bakery chain.

Issuance in the broader ABS market is running hotter than last year as well. Sales were at about $242 billion through the end of last week, compared with around $192 billion for the same period last year.

Representatives for Barclays and Morgan Stanley declined to comment. Subway didn’t respond to a request for comment.

The prior record-setting deal from Subway saw elevated investor demand. At the time, investors placed nearly $20 billion in orders on the $3.35 billion of bonds for sale.

Source: Theedgemarkets

(Sep 4): September is already shaping up to be a tough month for investors in the municipal debt market, with a supply-demand mismatch threatening to squeeze performance.

The total amount of redemptions to be paid out by local governments this month totals $22.8 billion, less than half of what was paid out in August and roughly 21% less than 2024’s monthly average, according to data from CreditSights Inc. That drop is set to reduce the baked-in demand that has supported the market for much of the summer.

At the same time, roughly $19.3 billion of new issuance is expected over the next 30 days — the most since June — according to data compiled by Bloomberg.

Less money flowing back to muni investors through bond payments coupled with the expected increase in new bond sales as issuers rush to raise debt ahead of the US presidential election, could lead to September weakness.

“Because of the slowdowns in redemptions and the increased pace of new issue supply, we expect that the net-supply will be positive for the rest of the year,” wrote Pat Luby, head of municipal strategy at CreditSights in a research note published Monday.

Actual supply for the month will most likely be much greater than the $19.3 billion forward supply estimate, since some deals are put on the calendar with less than 30 days notice. Bank of America Corp. expects $38 billion of supply this month.

September is also historically the worst month for the asset class, which has posted negative returns in seven of the last eight years.

Eric Kazatsky, a strategist at Bloomberg Intelligence, said the September losing streak could break if the Federal Reserve begins to cut rates at its next meeting in two weeks.

With the first rate cut priced in, and additional cuts on the horizon, “demand from investors looking to lock in higher yields should help boost performance,” he said in a note published Tuesday. “This, coupled with election jitters, could build on positive returns.”

Source: Theedgemarkets

The Indian Rupee (INR) holds steady on Wednesday. Traders remain vigilant for potential interventions from the Reserve Bank of India (RBI) to prevent the INR from breaching the 84 mark, though this has yet to be officially confirmed. Meanwhile, a fall in crude oil prices to the lowest since January might underpin the local currency as India is the world's third-largest oil-consuming and importing nation. 

Nonetheless, the renewed demand for the US Dollar (USD) from importers and risk aversion could weigh on the INR and boost the safe-haven currency like the Greenback. Looking ahead, the HSBC India Services Purchasing Managers Index (PMI) is due on Wednesday. On the US docket, JOLTS Job Openings and Fed Beige Book will be published. The attention will shift to the US Nonfarm Payrolls (NFP) for August on Friday, which might offer some hints about the size and pace of rate cuts by the Federal Reserve (Fed) this year. 

Daily Digest Market Movers: Indian Rupee remains fragile amid multiple headwinds

The World Bank has raised India's growth forecast to 7% for the current financial year (FY25), up from an earlier projection of 6.6%. 

The RBI Deputy Governor Michael Patra said India will need rapid economic growth for a decade in order to achieve Prime Minister Narendra Modi’s goal of becoming a developed country by 2047.

HSBC India Services PMI is expected to improve to 60.4 in August from 60.3 in July. 

The business activity in the US manufacturing sector continued to contract, albeit at a softer pace in August. The US ISM Manufacturing PMI rose to 47.2 in August versus 46.8 prior, weaker than expected. 

Financial markets have priced in around 61% odds of a 25 basis points (bps) rate cut by the Fed in September, while the possibility of a 50 bps reduction stands at 39%, according to the CME FedWatch tool. 

Technical Analysis: USD/INR is in consolidative mode, a longer-term bullish outlook remains in play

The Indian Rupee trades weaker on the day. The USD/INR pair remains traded in a consolidative mode in the near term. However, in the longer term, the positive view of the pair prevails as the price is well-supported above the key 100-day Exponential Moving Average (EMA) on the daily timeframe, with the 14-day Relative Strength Index (RSI) standing in bullish territory near 58.0.

The 84.00 psychological figure appears to be a tough nut to crack for USD/INR. A decisive break above this level could pave the way to 84.50.

In the bearish event, the initial support level emerges at 83.84, the low of August 30. A breach of the mentioned level could lead to some downside, possibly dragging the pair lower to the 100-day EMA at 83.62. 

Source: FXSTREET

Japan’s service-sector activity extended gains in August, a private sector survey showed on Sept 4, thanks to an uptick in overseas sales despite a darkening global outlook.

The final au Jibun Bank Service purchasing managers’ index (PMI) was unchanged at 53.7 in August, staying above the 50.0 line that separates expansion from contraction for a second consecutive month.

While the headline figure was in line with July’s reading, service companies’ new business growth slowed from the previous month.

But export sales rebounded from a contraction in July to the largest rise in three months, supporting overall service-sector business.

That marks a contrast to Japan’s manufacturing PMI for August released on Sept 2, which indicated the weakest exports in five months on weak demand in China, South Korea and other key markets.

Recent government data showed Japan’s export growth missed expectations in July, suggesting growing risks of further deceleration due to a stronger yen and softer conditions.

Weak global demand poses a challenge for sustainable economic growth and the Bank of Japan’s policy tightening, which has signalled more rate hikes if the economy and inflation keep up with its forecasts.

The August PMI data also showed the slowest service price inflation in nine months. Growth of service-sector employment and business optimism also hit seven- and 19-month lows, respectively.

The composite PMI, which combines the manufacturing and service activities, rose to 52.9 in August from 52.5 in the previous month, thanks to a recovery in manufacturing output, according to the survey.

“Sustained service sector growth and a renewed expansion in manufacturing output contributed to a stronger improvement in the health of the Japanese private sector economy,” which marked the fastest growth since May 2023, said economist Usamah Bhatti at the survey compiler S&P Global Market Intelligence. 

Source: Straitstimes