Capital Markets: "Stronger EMU PMIs Fail to Recharge the Euro's Upside Momentum"

From Marc to Market:

Overview: The capital markets are decidedly mixed today as investors are pulled between rising infections, heightened tensions between the US and China, lack of progress on new US stimulus, and technical forces as the new month begins. Asia Pacific equities were mixed though the Nikkei gained more than 2%, aided by the yen's slump ahead of the weekend, and the Shanghai Composite began the month with a 1.75% gain after the Caixin manufacturing PMI rose to its best level since January 2011. 

Most of the other markets in the region fell, including Hong Kong, Taiwan, India, and Australia. Europe's Dow Jones Stoxx 600 is up about 0.5% near midday, trying to snap a three-day downdraft and last week's nearly 3% decline. Investors may be encouraged by the stronger than expected July manufacturing PMI. US stocks are little changed. European benchmark yields are firmer, while the US 10-year yield is near 53 bp. The dollar is mixed. Currency pairs that often move together like Sweden and Norway and Japan and Switzerland are moving in opposite directions. The Swedish krona and the Japanese yen are among the leaders, while the Norwegian krone and Swiss franc are nursing modest losses. The euro is little changed. Emerging market currencies are mostly lower, and the JP Morgan Emerging Market Currency Index is slipping for the third session in a row, the longest losing streak since mid-June. Gold recorded a marginal new high (~$1988.40) before moving lower. Oil is trading heavier, with the September WTI contract spending more time below $40 a barrel. It continues to consolidate in last Thursday's range when it saw a low of around $38.70.

Asia Pacific
The manufacturing PMIs from around the region improved, but many remain below the 50 boom/bust level. Japan's was revised to 45.2 from the preliminary estimate of 42.6 after June's 40.1. South Korea's improved to 46.9 from 43.4. Taiwan was one of the rare countries that rose above 50 (50.6 from 46.2), and it was the first time since April. Australia CBA manufacturing PMI rose to 54.0 from 53.4 initially and 51.2 in June. The AiG measure rose to 53.5 from 51.5. There were a few exceptions to the broad improvement. India's manufacturing PMI slipped to 46.0 from 47.2, and Malaysia's eased to 50.0 from 51.0.

China's Caixin PMI rose to 52.8 from 51.2 in June and 50.7 in May. The details were constructive, with output above 50 for the fifth month and improving new orders. China's recovery seems very much intact. Meanwhile, the US is hinting at broader action against some Chinese apps, in addition to TikTok. The owner, ByteDance, wants to spin-off TikTok rather than sell it in a shotgun marriage to Microsoft. TikTok has promised more US-based jobs. At the same time, Germany joined several countries it scrapping its extradition treaty with Hong Kong. The US had indicated it would but has yet to make the official announcement.

Over the weekend, Samsung announced it was shuttering its last computer factory in China. Starting this year, it stopped making smartphones there too. Its two remaining facilities fabricate semiconductors. This may not be a response to the US tariffs on Chinese goods. It may be more a reflection of evolving supply chains as competition to China has emerged (e.g., Vietnam, Thailand) for labor-intensive manufacturing and assembly in some industries and some products....

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