Top Five Economic Takeaways From August's PMI as the Global Manufacturing Decline Continues

Data Interpretation

Economic

Summary:

At 49.5, down from 49.7 in July, the Global Manufacturing PMI, sponsored by J.P.Morgan and compiled by S&P Global Market Intelligence, signalled a deterioration of operating conditions for a second successive month in August. The rate of decline, while only very modest, was the steepest since last December.

The deterioration points to a halting of the manufacturing recovery seen in the first half of the year, which had seen the sector's best performance for two years.

To assess what's driving the change, we analyse the headline PMI's survey 'sub-indices'. Here are our top five takeaways from some of these sub-indices, which provides a deeper insight into the current manufacturing trends relating to output, demand, inventories, supply chains, employment and prices.

1: Global output slips into decline

The PMI survey's sub-index of production, which tracks actual month-on-month factory output changes, signaled a marginal drop in production in August, representing the first decline since last December. Although only slight, the decline marks a contrast to the robust gains seen during the second quarter, which had been among the strongest performances recorded over the past three years.

The survey data exhibit a correlation of 75% with the official annual rate of change in global production, with the survey data acting with a three-month lead. Using a simple regression-based model, the latest PMI data indicate that worldwide manufacturing output has broadly stalled so far in the third quarter having been growing worldwide at a relatively robust annual rate of approximately 2% during the second quarter.

2: Global exports fall for a third successive month

Decline in global output growth was weighed down by new orders for goods falling in August for a second month in a row, in turn a symptom of falling global trade flows. New export orders fell globally in August for a third successive month, dropping at the fastest rate since December.

3. Demand hit by renewed destocking and low confidence

The recent deterioration of demand in part reflects renewed destocking by manufacturers. The amount of inputs bought by factories worldwide fell in August for a second consecutive month, dropping at a rate not seen since last December.

The August survey also saw a rise in the number of companies reporting that their purchasing of inputs was being reduced in order to cut costs. The incidence of such cost-driven destocking was the highest recorded since April 2023.

The shift to destocking in part also reflects few concerns over supply availability. After a brief period of supply concerns at the start of the year, centered around attacks on ships in the Red Sea, supply chains have shown few delays in recent months - as signaled by the PMI's suppliers' delivery times index. Hence the incidence of safety-stock-related purchasing has fallen in recent months.

4. Confidence remains in the doldrums

A factor underlying the weakness of demand, and shift to inventory reduction, was a sustained low level of business confidence. Year-ahead output expectations dipped slightly in August and remain well below their long-run average, with producers around the world concerned in particular about geopolitical uncertainty, rising protectionism and falling trade, as well as broader economic growth risks.

5: Manufacturing prices rise at slower rate despite high shipping prices

One area of supply chains that was a concern among PMI survey respondents was the recent spike in shipping rates. Although well below the levels seen during the pandemic, higher shipping costs were seen as the main driving force of higher factory costs again in August. However, labour cost pressures have fallen close to normal levels globally - as depicted by the long run average - and raw material cost pressures and energy costs pressures are both below their long run averages.

Hence overall input cost inflation eased slightly in August, dipping further below the average seen in the decade preceding the pandemic, leading to only modest upward pressure on output (selling prices).

To stay updated on all economic events of today, please check out our Economic calendar

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ING

Economic

What was big in the 1990s, collapsed in the late 2000s but has staged a surprise resurgence after many years of absence? Yep, you guessed it. I’ve succeeded in making the heroic leap from the rock band Oasis and its comeback tour, to interest rates.

It’s not just the music fans that have been going through the back catalogue. Central banks are also digging out their parka jackets and looking back to the 1990s as they face up to the question of how far and fast rates need to fall. And not everyone is reaching the same conclusion.

Half the world away (sorry…) in Jackson Hole, Andrew Bailey, the Governor of the Bank of England, set out three potential paths for “persistent” inflation, all of which would imply very different paths for interest rates over the next couple of years.

First, would inflation simply fall away of its own accord – without any economic damage?

Second, would it take more pain in the jobs market to get inflation consistently back to target?

Or finally, do we now live in a world where pricing behaviour has changed for good and wage bargaining power has increased? That would imply it will be much harder to get inflation down permanently, and rates may barely fall at all.

Listening to Fed Chair Jerome Powell, it sounds like he’s very much in the first camp. Revealingly, he said that he doesn’t welcome any further weakening in the jobs market.

It sounds like he has become much more open to kicking off the easing cycle with a 50 basis-point cut in September, even if some of his colleagues appear less convinced. In practice, as James Knightley explains below, the size of that cut will almost entirely come down next week’s unemployment data.

Over in Europe, policymakers are still making their mind up on which of Bailey’s worlds we now live in. Wage pressure is still too high, but is that simply Europe’s collective bargaining wage process being slow to catch up after a period of higher energy prices? Or does it tell us that workers find it easier to protect their disposable incomes and lock in bigger pay rises than before the pandemic?

Part of the challenge lies in the fact that eurozone unemployment is still at record lows. Of course, that could start to change, and my colleague Peter Vanden Houte points to confidence data, which suggests consumers are slowly becoming more wary about their job security. Formally, at least, the ECB expects wage growth to fall measurably over the next year.

Bailey himself also seems sceptical that we’re in a world where price and wage power has increased permanently. But not all of his colleagues agree, and as long as services inflation stays uncomfortably high, the Bank of England seems set on moving slowly for the time being. That means no cut in September, regardless of what the Fed does, and the recent strength in the pound suggests investors are taking notice.

Any notion of policy divergence, however, I suspect will be short-lived. We reckon rates are headed to a similar destination in most developed economies, and for most, that probably means rates of 3% in the medium term, plus or minus half a percent or so. And as Padhraic Garvey writes, that means the 1990s might be a useful benchmark after all in terms of where US Treasury yields go from here.

If that comes to pass, then the Fed should be pretty chuffed. The 1995 rate-cutting cycle, much like the one in 2019, was a rare example of a central bank nudging rates back to a more neutral level without any major hiccups.

Of course, it’s much more common that rate cuts are started – or accelerated – by the wheels falling off the bus. And the added challenge today is that widespread fixed-rate lending means it takes longer for interest rate cuts to hit the economy.

Those US jobs figures will give us a clue as to whether we're entering this more precarious scenario. And if we are, then there’s a real risk central banks have left it too late to start cutting rates.

If they have? Well Oasis might say they needn’t look back in anger, economic recoveries don’t live forever. And hey, at least we’ve got someone other than Taylor Swift to blame for poor inflation forecasts next summer.

Chart of the week: Markets are reassessing how far rates need to fall

Source: Macrobond, ING

THINK Ahead in developed markets

United States (James Knightley)

•Fed Chair Jerome Powell made it clear at the Jackson Hole conference that the Federal Reserve will cut interest rates on September 18, stating that "the time has come for policy to adjust. The direction of travel is clear.” The question is whether it will be a 25bp move or a 50bp cut. The market is favouring 25bp.

•Our most recent forecast update round coincided with the market volatility at the beginning of August, and we changed our three 25bp rate cut call for this year to one whereby the Fed could cut by 50bp in September before reverting back to 25bp moves in November and December with the policy rate reaching 3.5% by summer 2025. The perhaps looks a little aggressive now, but the coming week will be critical in determining how aggressive the Fed will be on September 18.

•The jobs report is the clear focus after recent weakness and downward revisions to payrolls. If we get a sub 100k on payrolls and the unemployment rate ticks up to 4.4% or even 4.5% then 50bp looks likely given Powell’s comment that “we don’t seek or welcome further cooling in labour market conditions”. However, if payrolls come in around the 150k mark and the unemployment rate stays at 4.3% or dips to 4.2%, we can safely say it will be a 25bp. We are forecasting something in between for both, which will make the 25bp or 50bp call a difficult one. We will also get the ISM reports for the manufacturing and services sectors, plus other job market indicators that will help us firm up expectations for the jobs report.

To stay updated on all economic events of today, please check out our Economic calendar

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SAXO

Economic

Forex

The September curse has arrived, with markets entering a risk-off phase yesterday. Equities and cyclical commodities saw a sharp sell-off, while defensive sectors like consumer staples and yield-dependent real estate outperformed. The yen (JPY) stood out as a significant outperformer in the FX space, demonstrating its safe-haven appeal amid market turmoil.

Factors Driving Market Movements

September Seasonality: Historically, September has been a challenging month for markets. Yesterday's first trading day of September for US markets set a negative tone.

Economic Data: Recent economic data has fueled market unease. The US manufacturing sector remains in contraction, and with key jobs data scheduled for release on September 6, concerns about US growth prospects are mounting.

Amid this volatility, the yen outperformed significantly, rising 1% against the USD and 2% against the AUD.

This rally is attributed to the yen's role as a safe haven. Additionally, Bank of Japan Governor Kazuo Ueda's recent comments bolstered the yen. Ueda reaffirmed the central bank's readiness to raise interest rates if economic conditions warrant, despite the accommodative stance due to persistently negative real interest rates.

NFP Miss Could Amplify Volatility

The upcoming Non-Farm Payrolls (NFP) report is crucial. A weaker-than-expected August report, following July's disappointing figures, could lead to a dovish repricing of US rate expectations. A 50bps cut might become a base case scenario for September, potentially undermining the dollar and worsening market sentiment. However, as we highlighted in our FX note yesterday, haven flows could still provide a floor to the US dollar.

Consensus expectations for August jobs stand at 165k from 114k last month and unemployment rate is expected to fall to 4.2% from 4.3% in July. This could make the weak July print look like a one-off, probably caused by the impact of Hurricane Beryl, and reaffirm soft-landing belief for the US economy. This would question the over 100bps of easing priced in for the rest of the year, and possibly result in some hawkish repricing. However, the ‘Fed put’ could still stay alive.

This suggests market could be more sensitive to a downside surprise in NFP despite the risks of over-dovish pricing of the Fed path.

Carry Trade Unwind Risks

The market’s current volatility and the potential for a dovish shift in US monetary policy could reignite the risks associated with carry trade unwinds. Investors might close their positions in higher-yielding assets, increasing demand for safe-haven currencies like the yen as volatility jumps higher. While the yen's recent gains are driven largely by its safe-haven appeal, any resurgence in carry trade unwind risks could further boost its value. As a reminder, JPY rose by nearly 2% against USD and CAD on August 2, and 3.5% against the Mexican peso.

Meanwhile, positioning in JPY is mixed and close to neutral, indicating a lack of strong conviction in either direction, creating an environment where momentum plays can become a significant factor. The currency could be more sensitive to new information, leading to potential volatility as traders adjust their positions based on fresh insights. This makes the market ripe for sharp, potentially exaggerated moves, as the neutral positioning can quickly turn into a directional bet once a clear signal emerges.

Conclusion

The yen's rally amid yesterday's market sell-off underscores its effectiveness as a safe-haven currency. As we navigate through uncertain economic conditions and potential market shocks, the yen remains a key asset for investors seeking stability. In addition, the risks associated with carry trade unwinds and the upcoming economic data should be closely monitored, as they could significantly influence market dynamics and the yen's performance.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Warren Takunda

Cryptocurrency

Bitcoin neared monthly lows on Sept. 4 as crypto markets continued to react to a United States tech stock rout. Bitcoin Price Targets Include $50K as Nvidia Crash Shakes Nikkei, Gold_1

Bitcoin Price Targets Include $50K as Nvidia Crash Shakes Nikkei, Gold_1

BTC/USD 4-hour chart. Source: TradingView

Nvidia woes spill over to BTC price

Data from Cointelegraph Markets Pro and TradingView confirmed lows of $55,602 on Bitstamp — a level not seen since Aug. 8.

After recovering as much as 40% from its August crash, BTC/USD thus began to backfill downside candle wicks toward $50,000.

This time, however, the impetus was not Japanese stock market performance, but tech giant Nvidia. A US subpoena sent the firm’s stock price tumbling, and risk assets were quick to follow suit.

Gold, which just weeks ago set a new all-time high above $2,500, shed up to 1.3% on Sept. 3. Bitcoin Price Targets Include $50K as Nvidia Crash Shakes Nikkei, Gold_2

Bitcoin Price Targets Include $50K as Nvidia Crash Shakes Nikkei, Gold_2

XAU/USD 4-hour chart. Source: TradingView

Japan’s Nikkei 225 nonetheless saw its own snap reaction to the previous day’s losses, dropping 4.2% during the Sept. 4 Asia trading session and adding pressure to Bitcoin and altcoins.

“September has commenced with a widespread rush to the sidelines,” trading resource The Kobeissi Letter wrote in part of its latest commentary on X.

Analyzing BTC price behavior, popular trader CrypNuevo spelled out the ongoing candle wick filling exercise underway, with short-term targets extending to $51,500.

“7-days liquidations hit at $57k, and $56.6k (4h) long wick filled. Run for liquidity and wick fill projection completed,” he wrote.

“Watching for a potential bounce around this area. And if lost, we'll fill the daily wick at $51.5k.” Bitcoin Price Targets Include $50K as Nvidia Crash Shakes Nikkei, Gold_3

Bitcoin Price Targets Include $50K as Nvidia Crash Shakes Nikkei, Gold_3

BTC/USDT chart (screenshot). Source: CrypNuevo/X

Fellow trader Jelle saw similar potential for a reversal.

“Sweep + potential 12h bullish divergence forming for Bitcoin, as it tests the support level again,” he told X followers on the day alongside a chart showing relative strength index (RSI) readings. Bitcoin Price Targets Include $50K as Nvidia Crash Shakes Nikkei, Gold_4

Bitcoin Price Targets Include $50K as Nvidia Crash Shakes Nikkei, Gold_4

BTC/USDT 12-hour chart with RSI data. Source: Jelle/X

“Didn't get that move up first unfortunately but we have now hit my downside target so hopefully this just means we are now ready for that relief rally sooner rather than later,” Credible Crypto added.

“Nice wipe on OI here but no immediate signs of buyers stepping in just yet.” Bitcoin Price Targets Include $50K as Nvidia Crash Shakes Nikkei, Gold_5

BTC/USD 4-hour chart. Source: Credible Crypto/X

Traders see Bitcoin volatility continuing

Data from monitoring resource CoinGlass meanwhile recorded total crypto long liquidations of $200 million for the 24 hours to the time of writing. Bitcoin Price Targets Include $50K as Nvidia Crash Shakes Nikkei, Gold_6

Bitcoin Price Targets Include $50K as Nvidia Crash Shakes Nikkei, Gold_6

Crypto liquidations (screenshot). Source: CoinGlass

In its latest bulletin to Telegram channel subscribers, trading firm QCP Capital implied that more could come thanks to increasing volatility.

“QCP's Volatility Momentum Indicator (VMI) has been triggered this morning for both BTC and ETH, indicating that the market is entering a period of heightened volatility,” it confirmed, adding that the signal was nonetheless “directionally agnostic.”

Source: Cointelegraph

Risk Warnings and Disclaimers

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Warren Takunda

Stocks

London stocks slid in early trade on Wednesday, taking their cue from a heavy selloff on Wall Street on the back of poor manufacturing data, with sharp falls for Nvidia also weighing on sentiment.

At 0825 BST, the FTSE 100 was down 0.6% at 8,245.26 .

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said: "September began on an ugly note, to say the least. The US equities tumbled after the latest ISM data showed a fifth month of contraction in the US manufacturing, and at accelerated pace. The latter revived the recession worries ahead of this week’s critical US jobs data, and sent the S&P 500 more than 2% down. This was the worst selloff since August 5, when a weak jobs data from the US had boosted the recession worries, the expectation of a 50bp cut from the Federal Reserve and resulted in an almost 10% selloff of the S&P 500.

"The technology stocks led losses yesterday. Nasdaq 100 dived more than 3%, as Nvidia tumbled nearly 10% as part of the broader macroeconomic worries and suspected AI fatigue, and another 2.42% in the afterhours trading on news that the DoJ sent subpoenas to the company because it suspects that Nvidia violated antitrust laws, made switching harder to other chipmakers and penalized companies that didn’t use Nvidia’s AI chips exclusively."

In equity markets, housebuilder Barratt Developments was on the back foot as it reported a sharp fall in annual profit, citing cost-of-living pressures, higher mortgage rates and limited consumer confidence. The company said pre-tax profit slumped to £170.5m from £705m, with completions down 18.6% to 14,000.

Segro declined after saying it had agreed to buy rival Tritax EuroBox in a deal with an implied enterprise value of around £1.1bn including debt.

Hilton Food also fell despite posting a jump in interim adjusted operating profit, while Direct Line nudged lower as the insurer’s half-year operating profit missed expectations.

Compass Group was a little firmer after an upgrade to ‘outperform’ by BNP Paribas Exane.

Airtel Africa tumbled after a downgrade to ‘neutral’ by JPMorgan, while British Gas owner Centrica lost ground after a cut to ‘hold’ at HSBC.

Packaging firm DS Smith was also in the red after a downgrade to ‘hold’ by Stifel.

Source: ShareCast

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Stocks

Nikkei 225 drops by over 4%

The Nikkei 225 took its cue from US stock indices which had their worst bout of volatility since last month’s sharp decline and dropped by over 4% to a 2-week low.

The 9 August low at 35,935 represents the next downside target while the late August lows at 37,817-to-37,895 resistance.

The fact that the 200-day simple moving average (SMA) at 38,493 has been slipped through indicates that further downside is likely to be seen.

Sharp tech-led sell-off: Nikkei 225, FTSE 100, NASDAQ 100 and S&P 500 in free fall_1

FTSE 100 takes a hit, drops to 2-week low

On Tuesday the FTSE 100 suddenly slipped through its August-to-September uptrend line and tumbled to its 55-day SMA at 8,239 as US traders returned from their prolonged Labor day weekend.

The May-to-early July lows at 8,138-to-8,106 represent the next downside targets ahead of the 25 July low at 8,056.

Minor resistance sits at the 20 August low at 8,240. Further minor resistance can be spotted at the 27 August 8,314 low.

Sharp tech-led sell-off: Nikkei 225, FTSE 100, NASDAQ 100 and S&P 500 in free fall_2

S&P 500 drops on tech sell-off

The S&P 500 has swiftly come off its 5,655 record high as disappointing US manufacturing data and a tech-led sell-off pushed the index down by over 2% to the 55-day SMA at 5,510.

Potential downside targets are the 25 and 29 July lows at 5,396 to 5,392 ahead of the 5,343 May peak.

Resistance can be spotted at the 28 August low at 5,545 and the 22 August low at 5,562.

Sharp tech-led sell-off: Nikkei 225, FTSE 100, NASDAQ 100 and S&P 500 in free fall_3

NASDAQ 100 drops

NASDAQ 100 shares such as NVIDIA slid by around 12% since Tuesday (including after-hours trading), shedding more than $250 billion in market capitalisation, following a Bloomberg report that the US Department of Justice had sent the company a subpoena, deepening its antitrust probe.

The index so far dropped by over 3% to a 2-week low at 18,777 with the late July trough at 18,584 being next in line . If fallen through, the May low at 18,188 would come to the fore.

Minor resistance can now be seen at last week’s 19,081 low. Sharp tech-led sell-off: Nikkei 225, FTSE 100, NASDAQ 100 and S&P 500 in free fall_4

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Samantha Luan

Northport (Malaysia) Bhd recorded its highest-ever monthly container throughput for the second consecutive month, handling 365,558 twenty-foot equivalent units (TEUs) in August 2024, up from 354,548 TEUs in July 2024.

The company also set a new record for conventional cargo, managing 1,145,021 freight weight tonnes (FWTs) in August, surpassing the previous high of 1,143,318 FWTs achieved in July.

Chief executive officer Datuk Azman Shah Mohd Yusof said the consistent, record-breaking performance month after month reflects Northport's expanding capacity and enhanced efficiency in handling increasing cargo volumes.

“This achievement highlights our resilience and agility in responding to global challenges and the shifting dynamics of international trade.

“By continuously upgrading our infrastructure and services, we have reinforced Northport’s role as a vital gateway for global shipping, capable of meeting the evolving needs of our customers in a constantly changing market,” he said in a statement on Wednesday.

From January to August 2024, Northport received 171 ad-hoc calls and welcomed 13 new services at its port.

The new container yard, Block K, partially operational and expected to be fully completed in September 2024, significantly contributed to the higher volume in August.

“We hope this record throughput will help secure Port Klang’s position among the world’s top 10 busiest ports in 2024,” he added.

On Aug 27, Transport Minister Anthony Loke visited Northport, noting that Port Klang, which includes Northport and Westports, is currently ranked 11th on Lloyd’s List of the top 100 global ports for 2023, up from 13th in 2022.

Loke said Port Klang is on track to secure a spot among the top 10 busiest container ports globally in 2024.