Financial market review – 5 August 2016

Monday 1 August

• The Euro area reading for July manufacturing PMI’s was revised up 0.1pts to 52.0 helped by an upward revision to Germany. Notable was the further downgrade of UK data to 48.2 (from 49.1). The PMI for Italy declined 2.3pts to 51.2 (vs. 52.5 expected) whilst Spain fell 1.2pts to 51.0 (vs. 51.5 expected).
• In the US the final manufacturing PMI was unchanged at 52.9 which represents a 1.6pt rise from June. Meanwhile the ISM manufacturing fell 0.6pts to 52.6 last month (vs. 53.0 expected). New orders were little changed at 56.9 while production rose (+0.7pts to 55.4) however the employment component did fall back below 50 to 49.4 (from 50.4).

Tuesday 2 August

• Reserve bank of Australia decided to cut its base interest rate by 0.25% to 1.50%, which was in line with market expectation.
• In the US, the June personal income was +0.2% MoM (vs. +0.3% expected) whilst personal spending was higher than expected (+0.4% vs. +0.3% expected). The PCE deflator rose +0.1% MoM (vs. +0.2% expected) to leave the YoY rate unchanged at +0.9% whilst the PCE was in line at +0.1% MoM and +1.6% YoY. The latest vehicle sales numbers came in higher than expected at an annualised rate of 17.8m saar in July from 16.6m, whilst expectations had been for 17.3m.

Wednesday 3 August

• The final services PMI in the US was revised up half a point to 51.4 which left the composite at 51.8 (vs. 51.2 in June) and the highest since April.
• The Euro area services PMI was revised up 0.2pts to 52.9 which left it slightly ahead of June (52.8). The resulting composite print of 53.2 was up from 53.1 in June. Regionally the only country to see a big decline was Spain (composite down 2pts) with the rest of Europe, excluding the UK, resilient.

Thursday 4 August

• The Bank of England cut its base rate by 0.25% from 0.50%, introduced a new £100bn four-year Term Funding Scheme to aid the transmission of monetary policy at low interest rates through the banking system (an unexpected innovation); £60bn of gilt-based QE over the next 6 months and a corporate QE programme of up to £10bn.
• In the US, initial jobless claims nudged up 3k last week to 269k (vs. 265k expected) with the four-week average now sitting at 260k. Claims have now been below the 300k number for 74 consecutive weeks. Factory orders (-1.5% MoM vs. -1.9% expected) declined slightly less than expected in June whilst headline durable goods order were revised up in June to -3.9% MoM and core capex orders were revised up to +0.4% MoM.

Friday 5 August

• US non-farm payroll for July came in stronger than expected, showing an increase of 255k new jobs compared to an estimate of 180k, whilst the unemployment rate was in line with expectation at 4.9%.
• Trade balances for the US in June also showed a larger than expected deficit at $44.5bn, compare to a forecast of $43.1bn deficit.
• UK Halifax House Price Index showed a YoY growth of 8.4%, which was marginally below the expectation of 8.5%.