The European Central Bank convenes in a new week which also sees a barrage of official economic data releases. The latter includes US, mainland China and India inflation figures, while the UK updates its monthly GDP and labour market data. Additionally, S&P Global's Investment Manager Index and the GEP Supply Chain Volatility Index will offer valuable insights into key topics tracked by the market.
The ECB is in the spotlight amid high expectations of another rate cut. While softening price pressures have induced the market to price in two more rate cuts before the end of year, including 25 basis points for September, ambiguity over the rate path thereafter persists given the uncertainty over the inflation trajectory and recession risks. The August HCOB Flash Eurozone PMI, which offer early insights into the CPI trend, showed easing input cost growth. While output growth ticked higher, this was in part a temporary lift from the Paris Olympics, hinting at a weak underlying trend led by a deep manufacturing downturn. As such, the ECB's rhetoric regarding the outlook will be scrutinised closely.
Meanwhile a series of key official data will be updated in the week with US CPI especially closely watched ahead of the Fed meeting on September 17-18. Early PMI releases have pointed to an easing inflationary trend, and confirmation of inflation falling sustainably to target will be important to corroborate market speculation of FOMC rate cuts. Mainland China's inflation, industrial production and retail sales numbers will also be eagerly assessed to gauge the need for economic policy support.
Over in the UK, we will also be watching for July's monthly GDP figures, coming after positive growth prints were observed from PMI numbers for both July and August. Faster growth in employment was also noted for the UK since July, and wage data will be keenly assessed by the Bank of England to gauge second round inflationary pressures as UK policymakers remain cautious about further rate cuts.
Finally, we will look to the S&P Global Investment Manager Index for insights into equity market risk sentiment and views regarding market drivers. The September survey will also shed light on expectations regarding economic growth, Fed fund rates, US dollar and S&P 500 index outlooks.
Service sector resilience to be tested
The recent weakness of manufacturing has come under the spotlight amid concerns that the goods-producing sector's decline could be a precursor to broader economic malaise.
Although only accounting for around one-tenth of GDP in most developed economies, the manufacturing sector's health carries overweight importance because of its leading indicator properties. As our chart of PMI survey output data demonstrates, a deteriorating manufacturing performance tends to be followed by a noticeable weakening of the service sector within the next six months.
Hence news of the global manufacturing PMI showing a renewed fall in manufacturing output in August raises worries about spillover effects to the service sector, which is now the main driver of global economic growth.
A broader economic slowdown is by no means certain: the manufacturing downturn may prove to be a short-lived blip as anticipated interest rate cuts help drive a revival of demand, investment, and business activity. Could this time also be different, as economies grow less reliant on manufacturing? Business trends over the summer months can also be volatile. Hence September's PMI data will be crucial in determining the near-term global growth trajectory, and especially in monitoring this interplay between goods and services.
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