Any hope that September could provide a little bit more stability for stock markets after the angst of August was quickly set aside yesterday as disappointing manufacturing economic data, not only from China, but Europe and the US as well fed into an overwhelming narrative of pessimism surrounding the global economic outlook. While we have seen a late recovery in Asia, that’s largely been as a result of some late state intervention in Chinese markets to help keep a floor under stocks, with the help of the Chinese equivalent of the plunge protection team. In the past disappointing economic data ordinarily hasn’t normally been perceived as an overwhelmingly negative thing, as this weakness should keep overall monetary policy loose for the foreseeable future, with the potential for further easing measures in the weeks ahead. Regrettably for investors in general the People’s Bank of China isn’t the Federal Reserve and it appears that for all the recent talk about opening up its markets to inward investment and a more western model, old habits die hard and unfortunately Chinese officials have reverted to type and decided to shoot the messenger, blaming journalists and market participants for the recent volatility. This typical knee jerk scattergun approach is the last thing needed to calm febrile markets and if anything will make new investors much more cautious about future forays into Chinese markets. If you also throw in the additional uncertainty about what the US Federal Reserve might do with its headline policy rate in just over two weeks’ time, and while yesterday’s ISM manufacturing number was disappointing, there is a concern that it may not have been disappointing enough to prevent a potential increase in the Fed Funds rate from its 0%-0.25% window. For what it’s worth the prospect of a Fed rate rise still remains very much an outlier given the volatility seen in recent days, along with the consistent lack of inflationary pressure, not only in the global economy, but also the US economy, but given some of the current valuations in US equity markets, these remain the most vulnerable to a significant correction. What is apparent is that Fed policymakers have a wide range of views on what the next policy steps are likely to be and are being deliberately opaque, by trotting out the same lines about data dependence and taking the data on a case by case basis. Against that type of backdrop it is hard to see how they could arrive at the necessary consensus to push rates higher against such a volatile backdrop. This will of course put each US data release under much sharper focus, but we’re now starting to see the results of the slowdown in the oil and gas sector start to trickle down into the headline numbers for US manufacturing, and this was borne out by yesterday’s disappointing ISM report. On the radar today we have the latest ADP employment report for August, and these numbers have consistently come in short in recent months, with the July number coming in at 185k. Expectations are for a gain of 204k jobs in August, while later on we get the latest Beige Book survey of economic conditions. With wages and inflation also remaining on the weak side it would be wise to keep an eye on the final Q2 unit labour cost data which is also due to be released which is expected to show a decline of 1%. If this does come in as weak as expected it will be that much more difficult to make the case for a September rate rise. In the UK the case for a rise in interest rates suffered a setback yesterday after manufacturing PMI for August unexpectedly slipped back in August to 51.5, with prices also sliding back, and the first decline in jobs for 26 months. Admittedly the manufacturing sector makes up only a small part of the UK economy, but for a Chancellor who only a few years ago to go on a march of the makers this weakness is a setback in seeking to rebalance the UK economy. The construction sector has been a welcome contributor to UK GDP over the past couple of years, consistently outperforming and the expectation is that August construction PMI will be no different with an increase to 57.6 from 57.1 in July. EURUSD – having found some measure of support at 1.1150 the euro could well retest the 1.1400 level if it regains a foothold above the 200 day MA. We also have support down near 1.1100 where the 50 and 100 day MA intersect. The bias remains for a return towards the 1.1400 area while above 1.1080 level. GBPUSD – the pound continues to remain under pressure having broken through the July lows at 1.5330 bringing with it the prospect of a move towards the June lows at 1.5170. We need a move back through the 1.5480 level to stabilise and suggest a return to 1.5600. EURGBP – having finally overcome the 200 day MA at 0.7360 we could well see a move towards the May highs at 0.7485. Only a move below the 0.7320 level would undermine this scenario and suggest a return to the 0.7230 level, and even back to the 0.7130 area. USDJPY – having peaked at 121.75 the US dollar has slid back sharply below the 120.00 level suggesting the possibility of further weakness towards the 119.00 area initially and last week’s low at 116.20. CMC Markets is an execution only service provider. 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