The semblance of stability that had seemed to return to the global capital markets has ended abruptly.  Nearly every major country that has reported August manufacturing PMI except Germany, has disappointed.  China’s manufacturing PMI hit a three year low (49.7 vs 50.0 in July).  Global equities have slid, and a sharply lower opening is anticipated in the US. US 10-year Treasury yields have eased about 5 bp   Core European bond yields are softer, while periphery yields are firmer.  

In this environment, the yen is the big winner. It is up more than 1% against the US dollar. The greenback has slumped to JPY119.50, where it is finding some tentative support in the European morning.  Only a move above JPY120.60 will stabilize the technical tone.   The JPY119 area corresponds to a 50% retracement of last week’s bounce off the panic low near JPY116.20.  

The yen is not advancing on strong local data.  The manufacturing PMI was revised down to 51.7 from the 51.9 flash reading.  Capex rose 5.6% in Q2, down from 7.3% in Q1 and off the 8.8% consensus expectation.  

The eurozone manufacturing PMI slipped to 52.3 from 52.4 flash and July reading.  Germany’s was revised to 53.3  from 53.2 flash report and 51.8 in July.  That is where the good news ends. France was revised down further–48.3 from 48.6 flash and 49.6 in July.  Italy fell to 53.8 from 55.3. The consensus was for 55.0.  Spain eased to 53.2 from 53.6.  The market expected an unchanged report.  

The UK manufacturing PMI slipped to 51.5 from 51.9 in July.  The consensus expected a small improvement.  Norway’s PMI slumped to 43.3 from 45.4.  Sweden’s manufacturing PMI fell to 53.2 from 55.2.  

In addition to the PMI, Chinese officials announced a new initiative.  Starting October 15, bank trading yuan forwards must put 20% of the past month’s sales into a non-interest bearing account that will be frozen for a year.    The purpose of this is to curb speculative capital outflows.  Chinese officials appear to be backing off from accepting currency depreciation and instead focusing on capital outflow.  The yuan is up about 1% since August 26..   The dollar was fixed at CNY6.3752, compared with the close in Shanghai yesterday at CNY6.3790. The dollar closed today’s Shanghai session at CNY6.3642.   

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