Key Highlights

• Ukraine’s President Zelenskyy calls for a meeting with Putin in “neutral Europe” and rules out China as a security guarantor.

• Preliminary August PMIs continue to point to manufacturing contraction in developed economies such as Germany, France, the U.K. and Japan.

• Federal Reserve Governor Lisa Cook says she has “no intention” of stepping down from her position.

Chart of the Day

PMI INDICATES LIMITED POST-DEALS LIFT IN GLOBAL MANUFACTURING

^{Source: BNY, Bloomberg LP}

The first round of hard and soft export data to be released since the announcement of a series of trade agreements between the U.S. and key trade partners shows global output remaining in a difficult state. European government and industry responses to the U.S.-EU deal were lukewarm at best when first announced, but there has been very limited pushback as the drive for a settlement in Ukraine has taken precedence over the past month. However, the latest round of PMIs in Germany, France and Japan shows that contraction remains the norm in manufacturing sectors – though admittedly prints of 49.9 in all three indicate only marginal decline, and there is trend improvement. Nonetheless, it is striking that out of the 24 manufacturing PMI releases for Germany and Japan over the past year, only one has registered a figure above the expansion threshold of 50 for either of these two export powerhouses. Given that tariff escalation was not a major theme for much of this period, there are broader demand themes in play, especially in the automotive sector but also beyond. Meanwhile, the U.S. is also struggling to show stronger indications of a domestic manufacturing renaissance, although admittedly it will take time for the price effects of tariffs to feed through, and perhaps even longer for higher levels of onshore production to be realized. The disappointing releases in the Eurozone underscore our view that despite efforts to transition toward domestic demand and investment, the ECB still needs to acknowledge the importance of exports to growth and be mindful of any restrictive impact from a stronger euro.

What's Changed?

Global markets are clearly opting for defensive postures ahead of Jackson Hole, but there are initial signs that any further losses in tech and growth sectors will be marginal for now. The July FOMC minutes made it clear that “difficult trade-offs” loom if elevated inflation remains “persistent,” all with the intention of keeping long-term inflation expectations anchored, as the committee judges them to be for now. In this context, markets can probably find some reassurance that recent stagflation concerns will not trigger any “surge tightening” in financial conditions; however, some recalibration is needed on how much of the initially anticipated support from monetary policy will actually materialize. In addition, the Fed acknowledged that “core inflation remained somewhat elevated in some foreign economies,” also suggesting limited appetite or capacity to stimulate growth beyond current levels to bolster aggregate demand, especially outside of the Asia-Pacific region. Such an environment was likely already in the price for cyclical sectors, and that allowed further concentration of equity performance leadership into the secular technology and AI themes, now facing ever-closer scrutiny. However, there is also very little indication for now of a sudden cliff-edge in capital expenditure. Overextended positioning in certain industries can adjust for a slowdown in growth rather than an outright contraction. If the latest PMI releases in Japan and across Europe are an indication of wider global conditions, then it is a case of output continuing to expand moderately or even robustly, but forward expectations are now more heavily managed – altogether a manageable trade-off provided expectations do not become self-fulfilling. Markets will hope that risk performance can match the Fed’s policy execution, i.e., manage the near-term trade-offs with precision and mitigate tail risks adeptly to ensure that long-term return expectations remain well-anchored.

What You Need to Know

Germany’s flash composite PMI rose to 50.9 (consensus: 50.2) in August from 50.6 in July, the highest level in five months, signaling modest growth led by manufacturing. Manufacturing output accelerated to 52.6, a 41-month high, with new orders rising at the fastest pace since March 2022, though export sales dipped slightly. The overall manufacturing PMI improved to 49.9, while services activity slowed to 50.1, near stagnation. Employment declined further, driven by job cuts in manufacturing, while services continued to hire. Backlogs of work fell at the fastest rate in three months, led by services. Business expectations softened, with sentiment at its lowest level since May. Input costs and output prices both rose, with manufacturing seeing lower cost pressures but services facing rising wage-driven costs. DAX -0.094% to 24254.17, EURUSD +0.026% to 1.1655, 10y Bund +1.6bp to 2.733%.

The Eurozone’s flash composite PMI rose to 51.1 (consensus: 50.6) in August from 50.9 in July, a 15-month high. This was supported by the first rise in new orders since April 2022. Manufacturing output jumped to 52.3, the strongest figure for nearly three and a half years, lifting the overall manufacturing PMI to 50.5, while services activity softened to 50.7. Employment increased for the sixth consecutive month, with gains led by services as manufacturing jobs continued to fall. Backlogs of work fell further, while inflationary pressures picked up, with input costs rising at the fastest pace in five months and output charges at a four-month high. Business confidence weakened, with sentiment slipping to a four-month low. Euro Stoxx 50 -0.316% to 5455.05, EURUSD +0.026% to 1.1655, BBG AGG Euro Government High Grade EUR -2.5bp to 2.86%.

U.K. public sector borrowing was £1.1bn in July 2025, £2.3bn lower than a year earlier and the lowest July level in three years. Self-assessed income tax receipts reached £15.5bn, up £2.7bn y/y, though July and August should be considered together due to possible payment delays. Borrowing in April-July totaled £60.0bn, up £6.7bn y/y and the third highest for this period on record. The current budget showed a £3.3bn surplus in July, but the year-to-date deficit widened to £42.8bn. Public sector net debt stood at 96.1% of GDP, up 0.5 percentage points y/y, while net financial liabilities were 83.9% of GDP. The central government net cash requirement was £6.3bn, down £22.8bn y/y. FTSE 100 -0.025% to 9285.84, GBPUSD +0.082% to 1.3468, 10y gilt +3.3bp to 4.705%.

Ukrainian President Volodymyr Zelenskyy has urged swift progress on security guarantees as part of a possible peace deal with Russia, saying Kyiv expects clarity on the guarantees’ structure within seven to ten days. He noted the U.S. has assured European leaders it would help provide such guarantees – not with ground troops, but potentially with air support. Zelenskyy said once the commitments are clear, he would be ready to meet Russian President Vladimir Putin. He added that while possible summit sites include Geneva and Budapest, the latter would be “challenging” due to Hungary’s stance, stressing the talks should be held in a neutral European country such as Switzerland, Austria or Türkiye. Russia signaled no urgency, with Foreign Minister Sergey Lavrov insisting such talks require careful preparation. PFTS at 463.18, USDUAH -0.114% to 41.23810y UGB +15.1bp to 14.554%.

What We're Watching

U.S. weekly initial jobless claims are expected at 225k vs. 224k last week.

U.S. August Philadelphia Fed business outlook is forecast at 6.7 from 15.9.

U.S. August manufacturing PMI is expected to come in at 49.7 vs. 49.8 in July.

U.S. July leading index is expected at -0.1% vs. -0.3% in June.

U.S. July existing home sales are expected to ease to 3.92 million from 3.93 million in June.

U.S. Treasury sells $100bn in 4-week bills, $85bn in 8-week bills and $8bn in 30y TIPS.

What iFlow is Showing Us

Mood: iFlow Mood again stayed in the risk-off zone. Core sovereign demand remained strong, and equities halted their seven straight days of selling trend.

FX: FX flows remained mixed and light. There were notable outflows in APAC, especially in HKD, THB and IDR, followed by lighter outflows in USD, AUD and GBP. EUR, JPY, CNY and ZAR saw moderate inflows.

FI: Good demand for sovereign bonds, led by U.K. gilts, U.S. Treasurys, and Peru, Eurozone, Colombia, Brazil, Indonesia and Poland government bonds. Norway, Mexico and Israel posted the most selling.

Equities: G10 remains broadly sold, led by Europe, U.K. and Canadian equities, against moderate buying in Australia and Japan equities. Elsewhere, EMEA and LatAm were bought, against mixed and light flows in APAC. Chinese and South Korean equities were lightly bought. Within DM America, the industrials and healthcare sectors were most bought, with most selling in the energy and utilities sectors. 

Quotes of the Day

“There are no solutions, only trade-offs.” – Thomas Sowell

“You can have it fast, cheap or good – pick two.” – Tom DeMarco

Economic Details

The U.K.’s flash composite PMI rose to 53.0 in August from 51.5 in July, its strongest reading in 12 months. This was led by services, where activity climbed to 53.6, also a one-year high. Manufacturing output held flat at 49.5, while the headline manufacturing PMI slipped to 47.3, a three-month low. New business volumes increased at the fastest pace since October 2024, driven by services, while manufacturers reported the sharpest decline in orders since April amid weak global demand linked to U.S. tariff uncertainty. Employment fell for the eleventh consecutive month, with job cuts in both services and manufacturing. Input cost inflation rose to its highest level since May, with firms citing higher national insurance, food and transport costs, while prices charged also increased strongly, especially in services. FTSE 100 -0.025% to 9285.84, GBPUSD +0.082% to 1.3468, 10y gilt +3.3bp to 4.705%.

France’s flash composite PMI rose to 49.8 in August from 48.6 in July, its highest level for 12 months, signaling near-stabilization in private sector output. Services activity improved to 49.7, also a 12-month high, while manufacturing output rose to 49.8 and the overall manufacturing PMI reached a 31-month high of 49.9. Employment increased for the first time since November, with job creation at its strongest pace in 16 months. New orders continued to decline, though at the slowest rate in a year, supported by easing falls in exports. Input costs rose at the fastest pace in six months, with higher wages and raw material prices pushing firms to raise selling prices a little. Business confidence remained subdued, with manufacturers pessimistic about future output. CAC40 -0.435% to 7938.31, EURUSD +0.026% to 1.1655, 10y OAT +1.5bp to 3.429%.

Sweden’s industrial capacity utilization rose 0.4 percentage points q/q in Q2 2025 to 88.5% in seasonally adjusted terms. On an annual basis, utilization was flat at 88.9%, compared with Q2 2024 in calendar-adjusted figures. Data for Q1 2025 were revised up by 0.1 percentage points, with utilization at 88.1% on a seasonally adjusted basis and 88.3% on a calendar-adjusted basis. The figures for Q2 2025 remain preliminary, and Statistics Sweden confirmed that publication of industrial capacity utilization will be discontinued after the release of Q4 2025 data. OMX -0.23% to 2649.137, EURSEK -0.081% to 11.1698, 10y Swedish GB +1bp to 2.512%.

Norway’s GDP grew 0.8% in Q2 2025, with June recording a 0.4% m/m rise after a 0.2% fall in May. Mainland GDP rose 0.6% in Q2, supported by a 0.3% increase in June. Petroleum activities and ocean transport increased by 1.4% in Q2, with the June figure up 0.6%. Final domestic use of goods and services rose 0.3% in Q2, rebounding 0.6% in June after two months of contraction. Household consumption was up 0.2% in Q2 and 1.1% in June, while government consumption rose 0.5% in Q2. Gross fixed capital formation surged 4.6% in Q2. Exports increased by 0.8% in Q2 and 0.8% in June, while imports fell 0.6% in Q2 but rose 1.9% in June. Employment grew 0.2% in Q2, with total hours worked up 0.1%. OSE +0.721% to 1656.76, EURNOK -0.404% to 11.8823, 10y NGB +2.1bp to 3.952%.

Norway’s household consumption of goods rose 1.3% m/m in June 2025 after a 0.5% increase in May, driven by an 8.9% surge for electricity and heating fuels and a 3.6% rise for vehicle and petrol purchases, while food, beverages and tobacco fell 0.7% and other goods slipped 0.1%. Labor costs showed broad annual growth in Q2 2025, with aquaculture up 15.2% q/q and 4.2% y/y; oil and gas extraction fell 3.5% q/q but rose 2.9% y/y. Financial and insurance activities led annual growth at 4.7%, with most other industries – including construction, manufacturing, health and education – recording labor cost increases of between 3.1% and 3.8%.

Switzerland’s exports fell 2.7% m/m in July 2025 to CHF 22.2bn, while imports dropped 4.2% to CHF 17.9bn, the lowest since November 2024, leaving a trade surplus of CHF 4.3bn. Chemical and pharmaceutical products drove the decline, with exports down CHF 859mn (-6.8%), while watch exports rose 8.4% to CHF 2.3bn in a second consecutive gain. By region, exports to Europe fell 4.5%, led by drops for Slovenia, Austria and France, while those to Italy rose; exports to Asia shrank by 1.3%, due mainly to China, and exports to the U.S. rose 1.1%. Chemical and pharma imports fell 11.7%, with decreases of 12.2% for energy and 9.2% for jewelry, though machinery and vehicle imports rose. Imports from Europe fell by 5.8% and those from the U.S. by 7.9%, while there was a 5.2% rise in imports from Asia, boosted by South Korea. SMI -0.454% to 12220.51, EURCHF +0.182% to 0.93858, 10y Swiss GB -0.7bp to 0.313%.

Poland’s construction and assembly production prices rose 0.5% m/m and 3.2% y/y in July 2025. Producer prices fell by 0.1% m/m (consensus: 0.0% m/m), -1.2% y/y. Civil engineering and specialized construction activities both increased by 0.6% m/m, while building construction rose 0.4%. On an annual basis, civil engineering prices climbed 3.3%, specialized construction activities 3.1% and building construction 3.0%. Compared with December 2023, civil engineering recorded the sharpest cumulative increase at 6.3%, followed by specialized construction activities at 5.9% and building construction at 5.6%.

Poland’s enterprise sector employment fell 0.9% y/y in July 2025 to 6.43 million full-time equivalents, edging down 0.1% m/m, while average gross wages rose 7.6% y/y to PLN 8,905.63 and increased 0.3% from June. Consumer sentiment improved in August 2025, with the current confidence indicator rising 1.9 points to -12.1, up 3.8 points y/y. Gains were led by better evaluations of the economic situation and purchasing conditions, though households’ current financial assessment weakened. The leading confidence indicator climbed 1.4 points to -6.3, up 4.0 points y/y. It was supported by improved outlooks for the economy, unemployment and household finances, while expectations for saving deteriorated. WIG +0.528% to 111381.9, EURPLN +0.104% to 4.2523, 10y PGB -0.9bp to 5.394%.

Türkiye’s consumer confidence index rose to 84.3 in August from 83.5 in July, up 0.9% m/m. The sub-index for households’ current financial situation went up 2.6% to 70.0, while the outlook for household finances over the next 12 months fell 0.9% to 83.8. Expectations for the general economic situation over the next 12 months declined 0.7% to 78.4. Meanwhile, the sub-index for spending on durable goods over the next 12 months rose 2.5% to 104.8. BI 100 +1.197% to 11267.97, USDTRY +0.023% to 40.94, 10y TGB +5bp to 31.35%.

New Zealand July exports came in at $6.71bn (June: $6.53bn), up 2.7% m/m, 10.5% y/y, while imports surged to $7.28bn (June: 6.33bn), up 15.1% m/m, 2.57% y/y. This resulted in a trade deficit of $-578mn, from a $203mn surplus in June. Exports of milk powder, butter and cheese rose 17% to $1.859bn, and fresh or chilled beef and frozen beef exports to $401mn or 17% y/y. In terms of export destinations, total exports to China rose 7.1% y/y, with Australia +4.7% y/y, the U.S. +7.7% y/y, the EU +28% y/y and Japan +23% y/y. NZX 50 +0.939% to 13194.07, NZDUSD +0.018% to 0.5824, 10y NZGB -3.7bp to 4.346%.

Australia August flash PMI manufacturing rose to 52.9, its highest since September 2022, while the services figure was 55.1, the highest since April 2022. Australia’s business activity growth accelerated midway through the third quarter, with faster expansion across both the manufacturing and service sectors. This was supported by higher new work inflows, including renewed export growth. In turn, Australian private sector firms raised their staffing levels at a faster rate to cope with additional workloads. Business sentiment also improved slightly from July. On prices, both the rates of input cost and output price inflation eased in the latest survey period. Separately, the Melbourne Institute Consumer inflation expectations survey fell to 3.9% y/y, the lowest level since March 2025 (3.6% y/y), having hit 5.0% in June 2025. Expected wage growth increased slightly in August but remains relatively weak. ASX -0.051% to 5025.71, AUDUSD -0.156% to 0.6424, 10y ACGB -2bp to 4.278%.

Japan August flash PMI manufacturing improved to 49.9 but remains in contraction, while services eased from 53.6 to 52.7. Business activity across Japan’s private sector expanded at the fastest rate since February midway through the third quarter. The upturn was supported by a fresh increase in factory production alongside a further solid rise in activity at service providers. Total new business also expanded at the fastest rate in six months, though this was driven solely by the service sector. New export business fell at a steeper rate, however, and employment continued to expand only slightly. Cost pressures meanwhile intensified, with average input prices rising at a sharp and accelerated pace in August. However, selling price inflation slipped to the lowest level since October 2024. Nikkei -0.649% to 42610.17, USDJPY +0.177% to 147.59, 10y JGB -0.1bp to 1.61%.

Japan’s July machine tool orders totaled ¥128.4bn, down 3.6% m/m but up 3.6% y/y. Domestic orders fell 11.1% m/m and 0.7% y/y to ¥35.4bn, while foreign orders slipped 0.4% m/m but rose 5.3% y/y to ¥92.9bn. Cumulative orders for January-July reached ¥905.9bn, up 4.8% from the same period in 2024, with domestic demand down 0.9% and foreign demand up 7.3%. Meanwhile, in their latest portfolio flows update, Japanese investors net sold -¥314bn of foreign bonds but net bought ¥395bn of foreign equities last week. Foreign investors net bought a low ¥198bn of JGBs, after ¥733bn the previous week. Foreign demand for Japanese equities remains strong at ¥1.162tn vs. ¥496bn the previous week, matching the record YTD pace of ¥5.979tn.

India August flash PMI composite PMI rose strongly from 61.1 to 65.2. India manufacturing PMI – a weighted average of the new orders, output, employment, suppliers’ delivery times and stocks of purchases indexes – ticked up to 59.8 in August, from 59.1 in July, indicating a faster improvement in factory operating conditions across India. Both manufacturers and service providers saw new order intakes rise at a sharp and accelerated pace. Indeed, the index registered its highest reading since January 2008. Export markets supported August’s uplift in overall new business, with new business from abroad increasing at the fastest pace since the composite data were first published in 2014. As for pricing trends, the latest survey data indicated an intensification of inflationary pressures across India’s private sector. Input costs rose markedly amid reports of higher wage bills (particularly at services companies) and increased raw materials prices. Notably, charges set by surveyed businesses were raised to the sharpest extent since February 2013. In many instances, firms reported that strong demand had encouraged them to mark up the prices for their goods and services. SENSEX +0.408% to 82191.64, USDINR +0.143% to 87.2012, 10y INGB +2.3bp to 6.52%.

South Korea’s producer prices increased in July for the second consecutive month, driven by rising prices of agricultural and livestock products. PPI rose 0.1% m/m, 0.5% y/y. July’s increase came as prices of agricultural and livestock products rose 5.6% m/m, the sharpest gain since August 2023, due mainly to low supply caused by hot weather and heavy rainfall. Prices of petroleum products and services climbed 0.2% and 0.4% m/m, respectively. However, prices of electricity, gas and other utilities fell 1.1% m/m. Elsewhere, the country’s exports for the first 20 days of August rose 7.6% y/y. Imports rose 0.4% y/y, leaving a trade surplus of $833mn. Semiconductor exports rose 29.5%, while exports to the U.S. and China were mixed at -2.7% y/y and +2.7% y/y, respectively. KOSPI +0.372% to 3141.74, USDKRW +0.018% to 1397.65, 10y KTB -1bp to 2.847%.