Trading subdued amid low volatility

Market activity remained relatively subdued with only modest price movements observed, largely due to the low volatility caused by the Labor Day holiday. Investors adopted a cautious stance, with many awaiting more definitive signals from upcoming economic data releases. As the week progresses, markets are likely to experience increased activity as key economic indicators and central bank guidance come into focus.

This week is key for shaping market expectations on the Federal Reserve’s policy. Following Chair Jerome Powell's hints at a rate cut during the Jackson Hole Symposium, uncertainty remains about the size and pace of any cuts. Investors will be closely watching the ISM indexes and non-farm payrolls report for clues on the Fed’s next moves.

UK PMI manufacturing hits 26-month high

The UK’s manufacturing sector showed signs of resilience as the PMI Manufacturing index was finalized at 52.5 in August, up from July's 52.1, marking a 26-month high. Growth was broad-based across sectors, driven primarily by strong domestic demand which spurred new contract wins. This robust domestic performance managed to counterbalance a continued decline in export orders, which have been on a downward trajectory since early 2022.

Manufacturing remains a positive contributor to the UK economy, with solid growth in output, new orders, and the strongest job creation seen in over two years. The investment goods sector led the upturn, highlighting the sector’s ongoing expansion efforts. However, challenges persist, particularly in exports, where weaker demand from Europe and China, alongside logistical issues such as freight delays, high shipping costs, and ongoing political uncertainty, continue to weigh on overseas sales. These factors are also causing disruptions in supply chains, resulting in longer delivery times and a sharp increase in input costs, which saw another notable rise in August.

Eurozone manufacturing continues to contract

In contrast, the Eurozone’s manufacturing sector remains in a prolonged downturn, with the PMI Manufacturing index finalized at 45.8 in August, unchanged from July’s reading. This marks the third consecutive month of significant decline, underscoring the sector’s persistent struggles. The continued drop in new orders, both domestic and international, is a key factor contributing to this contraction. Compounding these challenges, goods prices have increased for the first time since April 2023, adding to the inflationary pressures faced by the European Central Bank (ECB).

With the ECB already grappling with high inflation and economic stagnation, the persistent weakness in manufacturing poses additional hurdles. Policymakers will need to weigh these factors carefully in their upcoming meetings as they navigate the complex landscape of fostering economic growth while managing inflationary pressures.