Flash PMIs to Test Growth Resilience After Mixed Data

Japan’s manufacturing sector expanded at its fastest pace in August, with the flash PMI rising to 55.1 from 54.7. The services index climbed to 52.3 from 51.2. The weak yen continues to lift new orders, supporting the broader economy. July’s nationwide inflation print, excluding fresh food, came in at 1.8%, matching consensus and up from 1.6% in June. Energy subsidies are keeping the headline below the Bank of Japan’s target. The pressure on the BOJ to tighten further and support the yen is mounting. Domestic price pressures remain modest, leaving the decision less straightforward, several analysts said.

Brent crude traded above $94.50 a barrel on Thursday, its highest since late July. The move followed the US escalation of economic pressure on Iran. President Trump warned of “severe consequences” for countries maintaining commercial or financial ties with Tehran. Treasury Secretary Scott Bessent said the US would impose the “toughest sanctions in history”. He also suggested that a stronger sanctions push could reduce the likelihood of a large-scale military escalation. Oil markets are misinterpreting the message, Bessent said. Details of the new measures are expected Monday.

Sweden’s Riksbank kept its policy rate unchanged at 1.75%, once again underwhelming market expectations. The decision came at a smaller meeting without new forecasts, so the focus was on the press release. The Riksbank reiterated that the probability of a rate increase later this year remains largely unchanged from June. It added that higher inflation prints over summer mark a tiny step in a more hawkish direction. It also suggested it wants to wait for more data. The likelihood of a hike in September has decreased, several analysts said.

In the US, the Philly Fed manufacturing index rose to 47.4 in August from 41.4. New orders and shipments weakened from July, though both stayed at relatively strong levels. Weekly initial jobless claims came in lower, while continuing claims edged higher. The overall signals were positive.

Norway’s Norges Bank Q3 Expectations Survey sent a mixed message. CEOs’ 12-month inflation expectations rose to 4.2% from 4.1%. Two-year expectations jumped to 4.6% from 4.1%. That gives little support to Norges Bank’s call that inflation pressures are easing, though the survey was taken before the low July inflation print. The details were softer. Inflation expectations among other participants edged lower. Labour unions lowered wage expectations. Employment expectations fell. All participants now expect lower wage growth than Norges Bank’s June MPR forecast.

Denmark’s Q2 GDP growth came in at 0.3% quarter-on-quarter, below the 0.5% expected, after a very strong 1.5% in Q1. The year-on-year rate slowed to 4.6% but remains high historically. Industrial production was the main growth driver. Wind turbines appear to be taking over from pharmaceuticals as the key driver, at least temporarily.

Equities continued to slide on Thursday, with the S&P 500 down 0.9% and roughly 2% below last week’s all-time high. The drivers shifted. Health care was the worst-performing sector, giving back part of the previous session’s rally. Consumer-related sectors, including staples and discretionary, also underperformed. Walmart came under pressure after reporting its slowest sales growth in more than six years and a softer Q3 outlook. Semiconductors rebounded slightly after a difficult week. Software performance moderated. Real estate was among the best-performing sectors. The market lacked a clear direction, with no cyclical-versus-defensive or value-versus-growth dynamic dominating. US futures are little changed Friday morning.

US yields moved higher Thursday, reversing much of the initial effect after Bessent’s announcement of increased buybacks from the Treasury. EUR/USD slipped back below 1.17. The buyback announcement’s impact should not be overstated, given that US fiscal consolidation remains a long way off, traders said. The Riksbank’s decision underwhelmed market expectations. With the ECB seemingly set to deliver a rate hike in September, the policy rate gap with Sweden would widen to 75 basis points, likely increasing pressure on the SEK.

Friday’s flash PMI releases from Europe and the US will offer the next read on growth resilience. The data will test whether the mixed signals from the past week – stronger Japan manufacturing, a steady Riksbank, rising US yields, and softer equities – point to a slowdown or a blip. The euro area composite PMI is expected to hold near 52. The US manufacturing PMI is forecast at 52.5.