The closure of Chinese markets today has removed an agitator and contributed to the calmer tone in the global capital markets. Sweden’s Riskbank’s decision to policy on hold has sent the krona up nearly 1% against the US dollar.  It is the big mover.  

On the downside, the Australian dollar is leading the way after a unexpected contraction in retail sales more than offset the narrowing of the trade deficit. The Aussie has broken below a monthly trend line but now needs to close below $0.7000 to confirm the break. The next major technical objective is seen near $0.6000.

The euro area service PMI was a touch better than the flash at 54.4 vs 54.3.  This was driven by Germany and Italy.  Germany’s final reading was 54.9 after the flash of 53.6, and is the best since March.  Italy surprised on the upside at 54.6 from 52.0 in July.  The consensus was for 52.5.  

Spain was hardly disappointing at 59.6.  Though it is down slightly from July’s 59.7, it as better than the 59.3 consensus expectation.  The disappointment is France, and the divergence between France and German seen in the manufacturing PMI has been duplicated in the non-manufacturing PMI.  France’s final reading slumped to 50.6 from the 51.8 flash and 52.0 July reading. 

However, the UK is challenging France for the most disappointing news.  After a disappointing manufacturing PMI (51.5 vs 52.0 consensus), the UK reported a dismal service PMI today.  At 55.6 it is the lowest since May 2013.  The consensus had expected a 57.7 reading after 57.4 in July.  The detail were poor as well, as new orders slumped to a 28-month lows.    The composite stands at 55.1 down from 57.4 in June.   

Sterling was sold to $1.5240, its lowest level since early June.  It has subsequently steadied, but former support near $1.5300 should now act as resistance.  The market’s confidence in a UK rate hike has faded not only because of market turmoil, which seems to be the main deterrent to the Federal Reserve, but also because of the deterioration of the UK economy.