In India, manufacturing PMI eased to 52.8 in August from 53.5 in July. While a reading above 50 still indicates expansion, the decline points to a slower pace of growth, with new orders, export demand and manufacturing output all losing momentum. Employment also fell for the first time in nearly two years, clearly signalling that businesses are becoming more cautious. However, easing cost pressures provide some support for the sector, suggesting that inflationary pressures may be becoming less of a burden for businesses. Against this backdrop, and with rising oil prices adding further pressure to the economy, the Reserve Bank of India has stepped up efforts to support the rupee, helping it strengthen to a two-month high of above 95 against the dollar recently.
With US Energy Secretary Chris Wright due to travel to Caracas, Venezuela’s National Assembly has given the green light to a major oil agreement involving US officials. The proposed arrangement reportedly grants a 100-year lease across 17 Venezuelan oil fields, providing the US with access to around one-fifth of the region’s oil reserves. If implemented, the deal could bring considerable investment into Venezuela’s energy industry and help lift oil production over time. Nevertheless, questions surrounding the legal framework, concerns across the industry and the highly unusual nature of the agreement create some ambiguity about its implementation.
In Japan, the prospect of further monetary tightening has moved back into focus, with Bank of Japan Governor Kazuo Ueda indicating that policymakers will consider another rate increase at their September meeting. While the decision will depend on how the economic and inflation data develop, a combination of yen weakness as well as rising energy costs linked to tensions in the Middle East and increased wage growth is adding to concerns over renewed price pressures. This has strengthened expectations that the Bank could raise rates again at its next meeting, with markets briefly beginning to reflect a shift in expectations as the yield on Japan’s two-year government bonds climbing to its highest level since the late 1990s following the comments.
Over in the Eurozone, the unemployment rate remained unchanged at 6.4% in July. The inflation picture was less encouraging, however, with headline CPI rising to 3.3% from 2.9%, largely driven by higher energy prices. Importantly, there is little evidence so far that these higher energy costs are feeding through into broader price pressures, with core inflation, which excludes more volatile components such as food and energy, edging down to 2.4% from 2.5% the previous month. Against this backdrop, the ECB has been at pains to signal that it is unlikely to repeat the aggressive tightening seen in 2022, instead favouring a data-dependent approach. With wage growth moderating and the labour market remaining relatively subdued, the current environment points towards a more measured approach to monetary policy.
Still to come this week we have Eurozone retail sales and US jobs data.
Nicola Tune, Portfolio Specialist
