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LGT Navigator: PMIs signal cooling at relatively high level

August 24, 2021

Leading indicators based on the latest purchasing managers' survey results confirmed fears of a cooling of economic growth in the USA and the euro countries. The stock markets took this as a sign that an expansive monetary policy by the major central banks can be expected for some time to come and continued their recovery, which began last Friday. In view of the highly anticipated Jackson Hole central bank symposium, economic indicators are likely to recede into the background again and monetary policy will take center stage.

PMIs signal cooling at relatively high level

On the stock exchanges, the positive trend at the start of the week continued. In New York, the Dow Jones Industrial gained +0.61% and closed at 35,335.71 points. At the S&P 500 and the Nasdaq even, new records could be noted. The S&P 500 ended Monday +0.85% higher at 4,479.53 points and the Nasdaq 100 gained +1.46% to 15,312.82 points. Among other things, the news that Pfizer/Biontech's vaccine has now received full approval in the US also provided good sentiment. In Asia, most stock indices followed the positive guidance from overseas and Europe's stock exchanges can also be expected to open on a friendly note again today.

US economic recovery loses some momentum

The Purchasing Managers' Index of the London-based market research institute IHS Markit indicates that growth in the US private sector slowed in August in the face of supply bottlenecks and uncertainties surrounding the pandemic. The composite PMI slipped to 55.4 points from 59.9 points in July, falling to its lowest level in about eight months. The growth trend weakened in August in both the service and industrial sectors. The PMI for service providers fell from 59.9 to 55.2 and the industrial indicator from 63.4 to 61.2.

Growth momentum in the euro area weakens slightly at a high level

According to the latest survey data from IHS Markit, the growth trend in the euro zone weakened slightly in August but remained at a high level. The composite index (PMI Composite) for the private sector (industry and services combined) eased to 59.5 points from 60.2 points in July – a 15-year high. The Purchasing Managers' Index for manufacturing fell back to 61.5 from 62.8, and the PMI for service providers slipped minimally to 59.7 from 59.8. Overall, the economic recovery in the euro countries continued to show impressive momentum in August, commented IHS Markit Chief Economist Chris Williamson.

In the UK, however, the IHS Markit Purchasing Managers' Index indicated a significant slowdown in August. The PMI for the British private sector fell from 59.2 to 55.3 points month-on-month. While the Purchasing Managers' Index in the industrial sector declined only slightly, the trend in the British service sector weakened noticeably in the current reporting period.

Bundesbank expects strong jump in growth in the third quarter

In its monthly report published yesterday, the German Bundesbank expects the growth momentum of the domestic economy to have picked up strongly in the summer quarter. Thanks to the pandemic measures that were eased from mid-May, GDP could grow much more strongly than in the spring. Accordingly, a growth rate of a good 3% could be achieved in Q3, twice as strong as in Q2. Growth will therefore be driven primarily by private consumption. However, there are uncertainties regarding the effects of the corona delta variant, the Bundesbank wrote.

 

Economic Indicators August 24

MEZ Country Indicator Last period
08:00 GE GDP Q2 (q/q) +1.5%
16:00 US New Home Sales (July, m/m) -6.6%

 

Earnings Calender August 24

Country Company Period
US Best Buy Q2
US Medtronic Q1

 

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Editor: Alessandro Fezzi, +41 44 250 78 59, E-Mail: lgt.navigator@lgt.com
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