UK smashed forecasts but Europe NO

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By: Andria Pichidi

Eurozone PMIs weaker than expected, with not just the services reading taking a hit, but manufacturing also weighed down by the new rise in virus infections that brought with them renewed restrictions. Developments were uneven, with German manufacturing confidence actually improving and signalling an acceleration in activity, even as the services reading fell back to 50.8 from 55.6. In France manufacturing confidence dropped back to 49.0 from 52.4 although services sentiment fell even more than that was also the case for the overall Eurozone numbers, which showed services confidence dropping to 50.1 from 54.7 and manufacturing easing just slightly – to 51.7 from 51.8. The composite fell back to 51.6 from 54.9. Markit reported that the growth of total new business was undermined by a fall in new export orders, with demand from services providers hit by travel restrictions. Manufacturing orders inflow continued to improve but muted underlying demand means overall companies continued to reduce staffing levels with falling workforce numbers evident across both sectors, although mostly concentrated in manufacturing according to Markit. The survey compiler concluded that the Eurozone’s rebound lost momentum in August and the economy “stands at a crossroads”. We agree that from here on things can go either way and if these numbers are mirrored in other sentiment data for August, the ECB will likely keep all options open at the next meeting.

Meanwhile, the UK’s preliminary August PMI data beat expectations, with the headline composite figure coming in at 60.3, indicating a brisk expansion in private sector activity. The median forecast had been for 57.1, which would have been only marginally higher than July’s 57.0 reading. An ongoing recovery in the service sector has been the dominate upward driver of the composite figure, with the preliminary August services PMI rising to 60.1 from 56.5. The government’s ‘Eat Out to Help Out’ scheme (meeting up to half the bill for consumers at restaurants and pubs from Monday to Wednesday during August) is behind the unexpected strength in activity (the cost to the public purse is estimated to be 0.5 bln pounds, in case you’re wondering). The manufacturing PMI lifted to a 55.3 reading, up from 53.3 in July.

European stock markets are narrowly mixed. The GER30 has shrugged off the weaker than expected preliminary PMI readings, which clearly registered the new restrictions imposed in many European countries after the renewed pick up in virus infections. The German benchmark is currently up 0.4% – other Eurozone markets are underperforming, but mostly also slightly higher, while the UK100 has dropped back -0.17% and US futures have pared overnight gains and are now slightly in the red.

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