European stocks rise on economic data

Today’s headlines

What’s happening: European stocks rose on Monday as investors continued to assess geopolitical risks.

What happened: Gains in defence stocks helped the pan-European stock indices record gains on the first trading day of September.

Strong economic data released on Monday provided further support to European equities.

Why it matters: The HCOB Eurozone manufacturing PMI surged to 50.7 in August, from 49.8 in the previous month. The figure was also higher than a preliminary reading of 50.5. The latest data release signalled the first monthly expansion in the bloc’s factory conditions since June 2022.

The Eurozone’s unemployment rate also eased to 6.2% in July, from 6.3% in the previous month and came in-line with market estimates. The latest jobless rate hit a record low, indicating strength in the labour market, with the number of unemployed persons falling by 170,000 to 10.805 million.

Goldman Sachs raised its projection for the STOXX Europe 600 for the next 12 months to 580, from its earlier forecast of 570.

The STOXX Europe 600 Index rose 0.23% to 551.43 on Monday, with the aerospace and defence index leading the gains to trade around record highs. The overall trading volume remained thin due to the US being on holiday for Labour Day.

Shares of defence majors, including Rheinmetall and Rolls-Royce Holdings, rose sharply during the session after the European Commission President Ursula von der Leyen said that Europe was working on “pretty precise” plans for military deployments in Ukraine as a part of the post-conflict security guarantees.

Shares of Novo Nordisk, the fourth-biggest healthcare firm on the STOXX index, added around 2% on Monday after the Danish drugmaker said its Wegovy lowered the risk of heart attack, stroke or death by 57% compared with tirzepatide in a real-world comparison.

What to watch: Investors will continue monitoring tariff-related announcements from the US, after a US appeals court ruled that most of the tariffs imposed by President Donald Trump are illegal.

The European Union has reached an agreement with the US, while talks are still ongoing with Switzerland.

Data on inflation rate (1300 UAE Time) from the Eurozone will also remain in focus. Analysts expect the annual core inflation rate, excluding prices for energy, food, alcohol & tobacco, to ease to 2.2% in August, from 2.3% in the previous month.

The markets today

The Japanese yen in focus today ahead of some major economic reports

Context: The JPY/USD forex pair fell this morning amid strength in the US dollar.

Details: The S&P Global Japan manufacturing PMI was revised lower to a reading of 49.7 for August, compared to a preliminary reading of 49.9. The revised figure was still higher than the 48.9 reported in July.

The latest reading signalled the 13th month of contraction in Japan’s manufacturing activity over the last 14 months, due to lower output and decline in overall sales.

Japanese companies raised their capital spending on plant and equipment by 7.6% during the second quarter, up from 6.4% in the first quarter. The figure topped market estimates of 6.2%.

Investors are eagerly awaiting the release of wage data on Friday, which could impact the Bank of Japan’s upcoming monetary policy decision. The central bank’s governor Kazuo Ueda recently said that the country’s wages are expected to surge due to a tightening labour market, which reinforced prospects of further rate hikes.

Strength in the US dollar exerted pressure on the JPY/USD forex pair this morning. The US dollar index, which measures the greenback’s performance versus a basket of major peers, rose 0.1% to 97.83.

The JPY/USD pair fell 0.3% to 147.61 this morning, while the Nikkei 225 rose 0.23% to trade at 42,284.98.

What to watch: Investors await the release of economic data on S&P Global composite PMI (0430 UAE Time) and S&P Global services PMI (0430 UAE Time) from Japan on Wednesday. Analysts expect the S&P Global Japan composite PMI to rise to 51.9 in August, from 51.6 in the previous month. The services PMI is projected to decline to 52.7 in August, from 53.6 in July.

Other Markets: US trading indices closed lower on Friday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.20%, 0.64% and 1.22%, respectively.

The news shaping the markets

Russian President Vladimir Putin accused the West of igniting the war in Ukraine. The news sent the RUB/USD pair higher in forex trading this morning.

Malaysia’s S&P Global manufacturing PMI edged higher to 49.9 in August, from 49.7 in the previous month. However, manufacturing activity remaining in the contraction zone exerted pressure on the MYR/USD forex pair.

South Korea’s consumer prices rose 1.7% year-over-year in August, easing from 2.1% in the previous month, which sent the KRW/USD pair higher in forex trading this morning.

Colombia’s Davivienda manufacturing PMI climbed to 55.3 in August. This being the fifth straight month of growth lent support to the COP/USD forex pair.

New Zealand’s merchandise terms of trade surged 4.1% in the second quarter, following a 1.9% gain in the previous quarter. However, the NZD/USD pair fell in forex trading this morning.

What else to watch today

Brazil’s IPC-Fipe inflation (1200 UAE Time), Spain’s 12-month Letras auction (1240 UAE Time) and 6-month Letras auction (1240 UAE Time), Italy’s PPI (1300 UAE Time), Germany’s 2-year Schatz auction (1330 UAE Time), Brazil’s GDP growth rate (1600 UAE Time), Singapore’s SIPMM manufacturing PMI (1700 UAE Time), Canada’s S&P Global manufacturing PMI (1730 UAE Time), as well as US S&P Global manufacturing PMI (1745 UAE Time), ISM manufacturing PMI (1800 UAE Time), ISM manufacturing employment (1800 UAE Time), construction spending (1800 UAE Time), ISM manufacturing prices (1800 UAE Time), RCM/TIPP economic optimism index (1810 UAE Time), 3-month Bill auction (1930 UAE Time), 6-month Bill auction (1930 UAE Time) and 52-week Bill auction (2100 UAE Time).