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The week in financial markets – 2 September 2016

Monday 29 August

• In the US, Q2 GDP was revised down to +1.1% QoQ, in line with the consensus. Corporate profits declined -1.2% QoQ in Q2 and are now -4.9% YoY which is the fifth consecutive decline and the worst such streak since mid-2009. The advance goods trade balance reading revealed a narrowing in the deficit to $59.3bn, from $64.5bn, due to an increase in exports. University of Michigan consumer sentiment reading in August was revised down 0.6pts to 89.8 (vs. 90.8 expected).
• In Europe, consumer confidence reports in both Germany (+0.2pts to 10.2) and France (+1pt to 97) rose unexpectedly. Meanwhile, the UK and France confirmed growth of +0.6% QoQ and 0.0% QoQ respectively in Q2 while the ECB reported a surprising slowdown in the rate of M3 growth to +4.8% YoY last month from +5.0%.

Tuesday 30 August

• In the US, the July personal spending rose +0.3% MoM as expected while income rose +0.4% MoM (also in-line). The inflation data revealed a bit of a slowing in momentum, however. Dallas Fed’s manufacturing survey which printed at -6.2 (vs. -3.9 expected), down 4.9pts from July and the 20th negative reading in a row.
• In Europe, the main highlight was the ECB’s latest CSPP holdings data which showed the total holdings as of August 26th are now €19.3bn following net purchases settled last week of €1.5bn. That implies an average daily run rate last week of €301m which is only slightly below the €345m average since the program started.

Wednesday 31 August

• Consumer confidence print in the US showed an increase of 4.4pts from July to 101.1 (vs. 97.0 expected). The present situations component rose 4.2pts to 123.0 and the best print in nine years, while the expectations index (which rose 4.4pts to 86.4) is now at the highest since October.
• In Europe, the latest CPI report for Germany in August revealed that headline CPI was 0.0% MoM and lower than expected (+0.1% expected). That has seen the YoY rate stay unchanged at +0.4%. The other data came in the UK where mortgage approvals declined to 60.9k in July from 64.2k in the month prior.

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Thursday 1 September

• In Europe, the August CPI report for the Euro area was a little disappointing after coming in below market at the headline (+0.2% YoY vs. +0.3% expected) and unchanged from July. The core also declined one -tenth unexpectedly to +0.8% YoY. Over in Germany unemployment held steady at 6.1% in August while retail sales data for July well exceeded expectations after rising +1.7% MoM (vs. +0.5% expected). Consumer spending data in France was more disappointing however ( -0.2% MoM vs. +0.3% expected) while France’s CPI report for August revealed headline inflation growth of +0.3% MoM (vs. +0.4% expected).
• The UK’s PMI is the clear standout with manufacturing reading which was up a bumper 5pts in August to 53.3 and well exceeding the 49.0 consensus. The monthly increase was, in fact, the joint greatest in the near 25-year of survey history. The final Euro area reading was revised down 0.1pts to 51.7. Germany was unchanged at 53.6 while France was notched down 0.2pts to 48.3. A first look at the periphery revealed that Italy (49.8 vs. 51.2 expected)disappointed but Spain (51.0 vs. 50.9 expected) was marginally ahead.

Friday 2 September

• In the US the final Q2 nonfarm productivity reading of -0.6% QoQ came in as expected. However, there was a significant upward revision to Q2 unit labour costs from +2.0% QoQ to +4.3%. Construction spending was a little disappointing for July (0.0% MoM vs. +0.5% expected). Meanwhile initial jobless claims rose 2k last week to 263k, and finally, total vehicle sales printed at a relatively disappointing 16.9m in August annualised, down from 17.8m the month prior. The Atlanta Fed subsequently cut their Q3 GDP forecast to 3.2% from 3.5% with the soft ISM data more than offsetting the upward revision to construction spending.
• UK’s construction PMI for August showed a better than expected figure of 49.2 versus the expectation of 46.1.
• US non-farm payroll for August came in at 151,000, lower than the forecast of 180,000 by market.

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