PMI data highlights the resilience of major European economies. Japan to raise interest rate on long-term government bonds

On Thursday, the Dow Jones Industrial Average (US30) fell by 0.34%, the S&P 500 (US500) dropped by 0.40%, and the Nasdaq (US100) closed down 0.34%. Walmart influenced the sentiment, plunging 4.5% after missing quarterly earnings expectations for the first time since 2022, despite raising its full-year sales and profit expectations. Weakness in other retail stocks heightened concerns about consumer resilience amid higher tariffs and uneven spending. On the data front, jobless claims rose more than expected, while the S&P Global Composite PMI indicated the highest rate of business activity in three years, suggesting a mixed economic backdrop. Investors are now awaiting a speech from Fed Chair Powell on Friday for signals on the Central Bank’s next moves. Futures are pricing in a 73% probability of a September rate cut.

The Mexican peso stabilized at 18.76 per dollar. Markets were digesting Banxico’s decision to cut its key rate by 25 basis points to 7.75% in a split vote. The minutes highlighted that headline inflation for July declined to 3.51%, while core inflation remained elevated at 4.23%. This combination points to both monetary easing and lingering inflation concerns.

European stock markets traded with mixed dynamics yesterday. Germany’s DAX (DE40) rose by 0.07%, France’s CAC 40 (FR40) closed down 0.44%, Spain’s IBEX35 (ES35) rose by 0.08%, and the UK’s FTSE 100 (UK100) closed up 0.23%. Frankfurt’s DAX pared its earlier losses to close slightly higher as traders weighed encouraging PMI data and positive developments in US-EU trade against ongoing uncertainty surrounding peace talks in Ukraine. Preliminary PMI data for August underscored the resilience of major European economies in the face of US tariffs and global uncertainty. Germany’s private sector activity in August rose slightly from the previous month, driven by higher-than-expected manufacturing figures. On the trade front, Brussels and Washington today released a long-awaited joint statement on a trade deal they brokered nearly a month ago, confirming that automobiles, semiconductors, and pharmaceuticals would be subject to no more than 15% tariffs upon import to the US.

WTI crude oil prices rose by 1.3% to $63.5 per barrel on Thursday, supported by signs of high US demand and uncertainty regarding efforts to end the war in Ukraine. A sharp 6 million-barrel reduction in US crude oil inventories, significantly exceeding expectations, also boosted sentiment, although an increase in Cushing stockpiles suggests that underlying demand may be less robust. Geopolitical tensions escalated, with Russia warning that peace efforts without Moscow’s participation are futile and the US announcing new tariffs on Indian goods in response to Delhi’s heavy reliance on Russian oil imports.

Asian markets also traded without any clear trend yesterday. Japan’s Nikkei 225 (JP225) fell by 0.65%, China’s FTSE China A50 (CHA50) rose by 0.51%, Hong Kong’s Hang Seng (HK50) fell by 0.24%, and Australia’s ASX 200 (AU200) showed a positive result of 1.13%.

Japan’s Ministry of Finance is preparing to raise the assumed interest rate on long-term government bonds to 2.6% in its budget requests for the 2026/27 fiscal year, which would be the highest level in 17 years. The previously assumed bond interest rate was set at 2.1% at the budget request stage for fiscal year 2025, and was later revised down to 2.0% in the final budget. The planned rate increase will lead to higher debt servicing costs. According to Kyodo News, the finance ministry will allocate about 30 trillion yen (approximately $202 billion) for debt service in its 2026/27 fiscal year budget request. This will be a record high, driven by rising long-term interest rates, the report said.

Malaysia’s annual inflation rate in July 2025 rose to 1.2% from a 4-year low of 1.1% in June, matching market expectations. Core inflation, which excludes volatile prices for fresh food and administrative services, has held at 1.8% y/y for the third consecutive month, remaining at its highest level since November 2023. On a monthly basis, consumer prices rose by 0.1%, matching the increase from the previous three months.