Daily Market Update - 23 Aug 2023

Global Business Activities Vary Amidst Contractions and Expansions

 

Japan experienced an accelerated business expansion in August, primarily driven by strong growth in its service sector, as indicated by a private survey conducted by au Jibun Bank. The country's flash Purchasing Managers Index (PMI) for August reached 52.6, surpassing July's figure of 52.2. However, Japan's manufacturing PMI remained in contraction territory for the third consecutive month, registering a reading of 49.0. In contrast, the service sector demonstrated a more substantial expansion, with its PMI climbing from 53.8 to 54.3.

In Australia, business activity contracted at the sharpest rate in 19 months during August, according to surveys conducted by Juno Bank. The country's flash composite PMI for August was recorded at 47.1, a decline from July's 48.2. The manufacturing PMI in Australia stood at 49.4, while the services sector PMI was even lower at 46.7, hitting a 19-month low.

Shifting to Germany, the Composite PMI for August 2023 dropped to 44.7 from the previous month's 48.5, significantly below the anticipated 48.3. This contraction marked the most severe decline in private sector activity since May 2020, post the COVID-19 pandemic. The decline resulted from a deepening manufacturing downturn and renewed contraction in the services sector.

With these economic developments, there is ongoing speculation about the tone Federal Reserve Chair Jerome Powell will adopt in his speech at Jackson Hole on Friday. Market participants are eager to discern whether his comments will be neutral or have a more pronounced effect on the markets than originally anticipated. Richmond Fed President Thomas Barkin noted that the US economy is showing signs of a "reacceleration scenario," with persistently high inflation and a strengthening economy, potentially justifying further interest rate hikes. Notably, retail sales and consumer confidence have remained resilient in the US Barkin also indicated that the recent increase in Treasury yields has not led him to believe that the Federal Reserve has excessively tightened financial conditions.