Market News

• August flash services PMI 51.7 vs 51.5 expected
• Prior 51.7
• August flash manufacturing PMI 52.8 vs 51.8 expected
• Prior 51.9
• August flash composite PMI 52.1 vs 51.7 expected
• Prior 52.0

After the misses from France and Germany, this is a bit of a surprise - especially the services sector estimate. The pace of expansion in the services sector was unchanged from July but comes in better than what we saw from Europe's two largest economies, with growth outside of the region picking up considerably. Who needs France and Germany eh?

Meanwhile, the manufacturing sector also performed well with the index there climbing to a 51-month high as manufacturing output hits a 54-month high in August.

All in all, a further rise in both output and new orders with a…

Q3 earnings sentiment turns defensive as Walmart deepens the warning

Q3 earnings reactions have shifted into a more defensive phase. Walmart’s roughly 9% decline, almost twice its expected earnings move, is the clearest new warning. Strong reactions in Deere and Ross Stores show that this remains a selective stock-picker’s market, not a broad earnings panic.

Key takeaways for stock investors and traders

• Walmart’s outsized decline materially worsened the earnings-season picture.

• The weakness did not begin with Walmart. Negative reactions have been accumulating across several earnings batches.

• Strong companies can still rally, but investors are becoming less forgiving of disappointment.

• Broad index exposure now carries more risk because one…

There is only one set of expiries to take note of on the day, as highlighted in bold below.

That being for EUR/USD at the 1.1685 level. The expiries don't tie to any technical significance, so it may not factor all too much into play in dictating price action.

The dollar remains in a vulnerable spot since Wednesday, with EUR/USD extending the technical break from then. Here is a better capture of the technical situation with price looking for a run above 1.1700 next: EUR/USD extends gains to fresh three-month highs after yesterday's break

As mentioned then, "the technical scope dictates that there is room for the upside to extend towards 1.1800 next" but it would "need to see the bond market continue to play ball for the dollar to weaken…

• Prior 52.2
• Services PMI 48.5 vs 50.1 expected
• Prior 49.8
• Composite PMI 51.0 vs 51.3 expected
• Prior 51.3

Comment:

Phil Smith, Economics Associate Director at S&P Global Market Intelligence:

"The recovery in the manufacturing sector has regained momentum, after it showed signs of stalling in the second quarter. Output, new orders and export sales have all risen at their quickest rates since early-2022, which likely reflects some catch-up from the more subdued picture we saw a few months back at the peak of the uncertainty and spike in oil prices associated with the Middle East war, as well as the influence of increased defence spending filtering through. It still remains to be seen if this pace of growth can be sustained, not least in light of…

• August business confidence 98 vs 98 expected
• Prior 97

The French business climate indicator picks up again in August, nudging back up to the highest since February. That being said, it's still keeping below the long-term average threshold of 100 - not having touched that since May 2024.

The improvement comes amid better sentiment in most broader sectors with employment conditions also holding steady. The detailed breakdown is seen below:

• Manufacturing confidence 103 vs 101 prior
• Services confidence 100 vs 99 prior
• Retail trade confidence 99 vs 96 prior
• Employment indicator 99 vs 99 prior

This is at least a good signal of how French business sentiment is holding up in Q3, but we'll have a better sense of how things actually might be playing out…

• August flash services PMI 48.4 vs 49.8 expected
• Prior 49.6
• August flash manufacturing PMI 51.5 vs 50.0 expected
• Prior 49.8
• August flash composite PMI 48.8 vs 49.5 expected
• Prior 49.4

The French private sector economy remains weak in August, with another contraction seen in overall business activity. This once again continues to reaffirm that the French economy remains on track for yet another subdued and mediocre quarterly showing as demand conditions remain soft.

The services sector was the main drag, offsetting the better showing in the manufacturing sector in August - which saw production rise for the first time since April. Of note, extreme heat was cited as a reason for lower activity levels. That sees demand conditions fall off further as…

Key takeaways for stock investors

• Sector rotation happens when investors move money from one part of the stock market to another.

• Recent signals suggest Consumer Staples may be entering early accumulation, while Utilities and Consumer Discretionary are cooling off.

• Price alone is not enough. Investors should also examine fund flows, professional positioning, relative performance and the reason behind the move.

• A defensive sector can still fall, while a popular investment story can become a poor entry if too many investors already own it.

• Sector rotation cannot predict the future, but it can show how expectations are changing beneath the headline index.

The stock market is not one single trade.

The S&P 500 might finish a day nearly unchanged, but…

• July retail sales -0.5% vs -0.5% m/m expected
• Prior +1.0%; revised to +0.7%
• July retail sales +1.6% vs +2.2% y/y expected
• Prir +4.2%; revised to +3.8%
• July retail sales (ex autos, fuel) -0.9% vs -0.5% m/m expected
• Prior +1.1%; revised to +0.9%
• July retail sales (ex autos, fuel) +2.3% vs +3.3% y/y expected
• Prior +5.4%; revised to +5.0%

The drop in July comes mostly from non-food store sales as well as non-store retailing, with ONS noting that the lower activity in July can be attributed to "demand being brought forward to June because of earlier than usual promotional activity".

Of note, department store sales fell by 1.4% on the month while textile, clothing, and footwear store sales fell by 2.7% on the month. Meanwhile, non-store retailing fell…

I think everyone has talked enough about the US Treasury move to double long-term debt buybacks this week, and its impact on broader markets. Bessent was even bold enough to suggest that they might do more and take further action if needed, considering that "yields do not reflect underlying fundamentals".

While the action by the US Treasury seems straightforward enough, there are potential risks associated to it. Thus, making it not so much a move that goes unpunished if they were to keep jerking markets around in this manner.

I mentioned yesterday already here how it can create a moral hazard of sorts and also how it could impact funding markets. So, let's continue to build on that just so we can be aware of what unintended consequences…

US long-term yields have bounced back in the second half of the week in erasing much of the drop from the US Treasury announcement. 10-year yields have more or less recovered fully to be back up to 4.704% now while 30-year yields are nudging back up to 5.251% on the day.

However, whether or not yields will look to break higher will depend on the conviction of the bond vigilantes - whom might be still cautious in wanting to challenge the "Bessent put" so quickly.

After the Wednesday announcement to double long-term debt buybacks, Bessent stepped in with some verbal intervention of his own yesterday. In case you missed it: US Treasury Secretary Bessent says the long-dated bond buyback could be more than $4 billion

This all sounds rather…

Gold has been a hot topic this week again, owing much thanks to the US Treasury move on Wednesday. Bessent & co. called to double buybacks at the long-end of the curve and that led to a return of two key tailwinds for gold. That being a fall in the dollar and Treasury yields falling/being suppressed. The latter in particular is quite significant, with Bessent even doubling down on the narrative here.

In essence, it's a signal that there is a clear "Bessent put" in the market right now.

Even though Treasury yields have bounced back up in the past few sessions, we're still seeing gold stay poised as we look to the final stretch this week. The precious metal is up 0.6% to $4,544 as it looks to keep a firm break above the $4,500 level ahead of…

The move signals Korea's intent to convert a cyclical windfall from the global chip upswing into a durable, long term investment vehicle rather than one off spending, which could support sustained capital deployment into strategic technology sectors regardless of near term swings in chip demand. For Korea's semiconductor heavy economy, formalising a channel to reinvest AI driven tax gains back into growth initiatives may reinforce the country's positioning in the broader AI and chip supply chain race, a theme markets have rewarded through 2026. The scale and structure of the fund remain unclear at this stage, so the near term market impact is likely to be limited to sentiment around Korea's long term tech competitiveness rather than an…