Global business surveys for August continue to make irritating noise in Europe and China, while disinflation hopes have been dashed by a rebound in oil prices, leaving the US dollar rising again.
The dollar index against most traded currencies (.DXY) hit its highest level since May on Tuesday, just as US markets returned from the long Labor Day weekend, still digesting Friday’s benign jobs report on rapid job creation, higher labor force participation, and a chill in wages.
The recent support from oil prices – which has seen year-on-year disinflationary declines ease to less than 10% from as high as 40% in June – continues to weigh on bond markets and will keep central banks on their toes.
But the US jobs outlook underscores the consensus on a “soft landing,” something Tuesday’s updates to last month’s global business surveys suggest might not be the case elsewhere.
The Dollar and China
The dollar’s latest jump was fueled Tuesday by news of another dip in Chinese service sector growth to eight-month lows last month, dampening optimism about a tentative recovery on Monday in a sister manufacturing survey.
Although the complicated fixing of China’s ongoing housing crisis was some relief – as property giant Country Garden made some last-minute dollar bond payments – the crisis in the economy as a whole clearly persists. The offshore yuan fell sharply from recently reached levels thanks to indirect official intervention.
Equivalent eurozone surveys later that day showed an even bigger contraction in activity than early “flash” estimates for August: the all-sector index fell nearly two points to 46.7 in August, an all-time low since November 2020. That sent the euro tumbling against the dollar to levels not seen since mid-June.
Although UK companies are also posting their biggest drop in seven months, they were slightly above “flash” readings. But that provided little comfort to sterling, which was also battered by the dollar to its lowest level since June.
Meanwhile, the Australian dollar slid to near its lowest levels of the year, as the Reserve Bank of Australia left interest rates unchanged for the third consecutive month at its latest meeting chaired by Governor Philip Lowe.
Bitter business surveys took some heat out of the recent rally in oil prices, but did little to calm the long end of the bond market.
Despite little to no change to the Federal Reserve’s interest rate expectations since Friday, 10-year Treasury yields – which rose sharply just before the weekend – continued to rise above 4.20%. They cited a mix of energy price concerns, a busy corporate bond selling schedule and fiscal concerns surrounding a possible government shutdown over the next month.
Stock markets in China and Europe were all in the red, with Wall St Futures slightly lower ahead of Tuesday’s open.
In corporate news, shares of English soccer club Manchester United (MANU.N) fell nearly 10% pre-market after British newspaper The Mail on Sunday reported that the club’s owners, the Glazer family, were going to take the club off the market, having failed to come close to its intended asking price in a protracted attempt to sell it this year.
By Leonardo Pérez
