The September UK PMI manufacturing index declined marginally to 48.4 from the flash reading from 48.5, although this was slightly stronger than the August reading. There were stronger increases in costs and prices for the month while supply-side difficulties increased slightly on the month. The data had little impact with markets monitoring UK political developments and global risk conditions very closely. Gilts rallied after the U-turn on the top rate of tax with the 10-year yield trading below 4.00% while global yields also declined which stabilised risk appetite. Sterling struggled to hold the initial advance, especially as the Bank of England bought very few bonds in the latest operation to buy bonds. Gilts rallied again after the UK data and Sterling gained fresh support as risk appetite strengthened sharply with equities making robust gains and Sterling rallied against the dollar. There were still important reservations surrounding UK economic policy with ratings agency S&P stating that the government U-turn did not affect the ratings warning. Following Chancellor Kwarteng’s speech there were reports that the fiscal statement will be brought forward to late October which helped underpin Sterling. Bank of England MPC member Mann stated that she voted for a 75 basis-point rate hike in September due to concerns over Sterling, inflation expectations and the energy price cap.
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The Euro-Zone PMI manufacturing index declined marginally to 48.4 from the flash reading of 48.5 and recorded a 27-month low with the sector confirmed in contraction. The Italian and Spanish readings were both in contraction territory below 50.0, although the Italian reading beat market expectations. There was a stronger downturn in new orders for the month while supply-side pressures eased, but there were stronger increases in costs and prices on the month.
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The US ISM manufacturing index retreated to 50.9 for September from 52.8 in August which was below consensus forecasts of 52.2 and the weakest reading since May 2020. New orders dipped back into contraction territory, also recording the weakest reading since May 2020 while there was a marginal advance in production. The employment index also indicated a decline on the month while the prices index retreated to 51.7 from 52.5 and the lowest reading since June 2020. The weaker than expected US data and evidence of an easing in inflation pressure triggered a dip in US yields and the dollar also posted significant net losses.
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