US manufacturing remains robust, but jobs market stays subdued

In terms of today’s US data, the August ISM manufacturing index is a touch softer than expected at 54.6 in August, down from 55.6 (consensus 55.2). The 50 mark separates expansion from contraction: the further the index rises above 50, the faster the pace of growth, while readings below 50 indicate contraction, with lower values signalling a steeper decline.

In terms of the details, the production index remains in very strong growth territory at 58.3, historically consistent with GDP growth of close to 3%.

New orders slipped to 53.7 from 56.7, the weakest reading since March, while employment moderated to 51.2 from 52.8, but remains clear of the 6M average of 49.6.

In general, the activity metrics underscore the improvements seen in the manufacturing sector, which is in large part a consequence of the surge in tech related investment spending.

The downside is the prices paid component remains very firm at 71.1, indicating input costs, such as energy, commodities and semiconductors, continue to increase at a rapid pace.

Overall, there is nothing in this report to moderate market pricing over a Federal Reserve rate hike later in the month – that currently stands at 16bp of a potential 25bp hike.

US ISM output metrics versus YoY GDP growth

Source: Macrobond, ING

• Solid improvement in business conditions masks slower demand and output growth as supply issues persist

The headline seasonally adjusted S&P Global US Manufacturing Purchasing Managers’ Index™ (PMI) was unchanged at 53.9 in August, signaling a solid expansion in the manufacturing economy. (…)

Manufacturers continued to build inventories of inputs and finished goods to guard against price increases and delivery delays, although another marked lengthening of average lead times hindered these efforts. (…)

New orders rose at a solid pace in August that was little changed from July. Growth was largely confined to the domestic market, however, as exports fell for the fourteenth month running. Tariffs were reported to have weighed on
foreign sales, although some firms noted that pockets of improved demand from Europe had partly offset this impact. (…)

Purchasing activity increased for the eighth month running, in line with increased production requirements. Where buying rose, firms also linked this to efforts to secure inputs ahead of further price increases and supply disruption. As
a result, pre-production inventories continued to expand, although the pace of accumulation was the softest since April amid difficulties receiving inputs due to material shortages and high prices.

These issues contributed to another marked lengthening of average lead times in August, with the latest deterioration among the steepest seen over the past four years.

(…) goods producers reporting broad-based increases in input prices linked to the war in the Middle East and tariffs. Manufacturing companies, in turn, raised charges at the slowest pace since February.

Canada: Growth maintained at solid rate as output, new orders and employment all rise

(…) Panellists reported that demand had improved since July, albeit predominately from domestic markets. New export orders fell for the third successive month, largely due to the ongoing negative impact of trade tariffs.

Helping to support the expansion of production in August was a solid rise in employment, with overall job creation the best since October 2024. Extra staff were generally hired to increase capacity and help deal with rising overall workloads.

Although growth was modest, backlogs of work nonetheless rose to the greatest degree since June 2022.

(…) purchasing and stock accumulation partly reflected pre-purchasing of goods due to worries over price trends and product availability.

On the price front, input cost inflation was again historically elevated, despite easing to a four-month low. Panellists principally attributed inflation to US tariffs, higher fuel costs and increased prices for metals like aluminium and steel. Where possible, costs were passed on to customers via an increase in output prices, although inflation also dropped since July.

Hurray for the Bond Market Higher yields aren’t yet a crisis. They could be if the politicians in Washington don’t listen.

(…) Spendthrift governments might finally have to pay more to borrow and tighten their belts as a result. (…)

Neither party in Washington is willing to reform the runaway entitlements that are driving the debt.

The bond vigilantes aren’t yet in full cry, but their early murmurs are welcome. They are sending a message to Washington and other Western nations to clean up their fiscal acts. Bond investors may be the only people who can force the politicians to pay attention. The real worry is if the politicians don’t listen.

Scott Bessent after the G-20 that he graciously kicked off mocking Canada gave the US government’s position on that:

“The world is awash in debt,” Bessent told reporters Monday at the gathering. “The only way for us to get out of this is to grow our way out of it.”

“With America once again leading this forum, the days of settling for subpar growth are over. The discussions we’ve had here this week leave me confident that many of our partners are now prepared to join us.”

Kevin Warsh, an avowed market listener, seems to think there are more than one way “out of this”.

Investors are now clear about the asynchrony between the Fed and the current administration.

Greg Ip about Bessent’s only way:

This is not a credible solution. First, growth hasn’t come to the rescue yet. U.S. GDP is up 2.1% in the past 12 months, in line with Joe Biden’s last year in office. The federal deficit is likely to top 6% of GDP this fiscal year, in line with or higher than in Biden’s last full fiscal year.

Second, an AI boom isn’t enough. In a recent paper, economists Doug Elmendorf, Karen Dynan and Louise Sheiner examined scenarios in which AI sustainably boosted annual productivity growth by a half to a full percentage point, with differing impacts on employment. In all scenarios, the debt keeps rising as a share of GDP, albeit more slowly than now.

Third, better growth naturally leads to higher interest rates, which raises the interest bill on the debt. Indeed, that may be one factor at work now. Heady visions of AI’s potential have uncorked a tidal wave of AI-linked borrowing.

Gavekal sums up this financial world:

(…) a world in which policy settings across the Western world will most likely stay the same (i.e.: profligate fiscal policies, monetary policies that stay behind the curve, trade policies that crush productivity and forward planning, and diplomacy which favors wars and conflict over peace and compromises).

US Diesel Hits Highest Since April as Wars Strain Global Supply

(…) Diesel is the lifeblood of the global economy, powering trucks, agriculture and construction, and spikes at the retail level affect industries as well as consumers. The fuel has been boosted this year by the conflict in the Middle East, as well as the Russia-Ukraine war. Moscow — typically a major supplier — has curbed exports following waves of attacks on its refineries. (…)

• Europe’s largest airline warns of jet-fuel prices at $140 this winter as it cuts capacity

(…) Jeff Currie, a well-established commentator on commodity markets and a senior advisor at the Carlyle Group, warned investors about refined products a few weeks ago. Interviewed by CNBC Aug 18, Currie emphasized that markets were looking at the wrong price: “Nobody on the planet consumes crude oil except refineries. Everyone else consumes gasoline, diesel and jet fuel and those markets look considerably uglier.” (…)

[Goldman’s trader] Privorotsky also warns that even if the U.S. now decides to “aggressively de-escalate” that “crude is just one component of the problem as distillate, gasoil, diesel and critically, European natural gas have all broken out.” (…)

• Energy price surge hits bond markets as European gas reaches three-year high

(…) “The perception that this [conflict] is all going to be over by Christmas is fading fast,” said Mike Bell, head of market strategy at RBC BlueBay Asset Management. “That’s driving the market.” (…)

Gas companies traditionally store up supplies over the summer months to smooth out any disruption over the winter, but this year stores are at their lowest level for more than a decade. Across the EU, stocks were only 63 per cent full in the last week of August. (…)

The supply crunch is also hitting

• LNG (20% of global trade through Hormuz)
• Fertilizers and chemicals (30%)
• Aluminum (9%)
• Methanol (30%), feedstock for resins, coatings and plastics
• Helium (30%), semiconductor manufacturing, MRI scanners.
• Sulfur (~50%), a feedstock for sulfuric acid, a chemical required for two global workflows: EV batteries, fertilizers.
• Graphite: EV batteries
• Glycol: key input for polyester fibres, packaging and textiles
• Iron ore/steel pellets
• Green hydrogen

(Yardeni Research)

Beware: September Is Back Again

Everyone in the stock market knows that September is the cruelest month for stocks. But when it is a bad month, it tends to create buying opportunities for a year-end rally that often starts in October. (…)

We share the Bond Vigilantes’ concerns, but we aren’t convinced bond yields are, or will soon be, prohibitively high. True, they are back to levels seen before the Great Financial Crisis (GFC). But that’s because they are normalizing after a long period of abnormally low bond yields following the GFC, when central banks were rigging bond markets.

Since the lows of the Great Virus Crisis, yields in the major overseas government bond markets have mostly recovered and converged to their respective national nominal GDP growth rates.

As we’ve recently observed, in the US, nominal GDP rose 6.6% y/y during Q2-2026, while the 10-year Treasury yield is 4.80% this evening. If it hits 5.00%, we expect strong demand for the bond, including from Treasury Secretary Scott Bessent. He’ll issue more Treasury bills to buy back bonds if necessary to avert a selling panic. (…)

• September is historically the toughest month for equities, with positive returns just 49% of the time. (The Daily Shot)

Renaissance Macro Research via EntryPoint by Sherwood

Historically, September’s worst S&P 500 declines have overwhelmingly occurred during already-weak markets.

Source: @RyanDetrick

Strong year-to-date gains have historically preceded many of the best September returns, suggesting the S&P 500’s nearly 13% advance in 2026 may reduce the risk of a sharp September selloff.

Source: @RyanDetrick

MANUFACTURING PMIs

Eurozone: Factory output growth accelerates to four-and-a-half-year high in August

The S&P Global Eurozone Manufacturing PMI increased to 52.7 in August, from 51.9 in July, its highest level since May 2022.

A considerable contribution to this uplift stemmed from the eurozone’s largest economy, Germany, which recorded its best month of manufacturing sector growth in over four years. France also helped lift the overall expansion rate, although this was somewhat offset by a renewed decline in Italy’s goods-producing economy (the first since January). Spain was the only other monitored eurozone country to register a Manufacturing PMI figure in contraction territory, as solid upturns were seen elsewhere.

Manufacturing production growth accelerated across the eurozone for a third successive month in August, marking a sustained uplift in momentum. The rate of expansion was above its survey average and the fastest in four-and-a-half years. Data split by the three main industrial categories revealed that the intermediate goods segment provided the greatest boost to output.

This includes critical industries such as chemicals and metals, as well as electrical equipment and electronic components, suggesting the euro area can also be a beneficiary from the tech supercycle, even if it’s arriving late to the party.

Demand conditions were supportive of growth, as evidenced by a solid rise in the level of incoming new orders. The increase in total sales volumes was the sharpest seen since early-2022. Notably, new export business grew for just the second time in four-and-a-half years. Overseas sales growth was particularly strong in Austria, Germany and the Netherlands.

After slight cutbacks in June and July, eurozone goods producers raised their purchasing activity during the latest survey period. Stocks of purchases continued to fall, however, and at an accelerated rate. August PMI data pointed to ongoing supply-side disruption as average delivery times from vendors lengthened sharply and to a slightly greater extent than in July.

Regarding eurozone manufacturers’ own capacity constraints, the latest survey results showed no such signs as backlogged order volumes were unchanged on the month. Factory employment levels were held broadly steady, which in itself was a relative improvement after more than three years of uninterrupted decline.

The downward path of input price inflation continued in August. Input costs rose at the softest rate in six months, although the rate of increase was still well above that seen before the outbreak of the Middle East war. This also held true for output charges.

That said, the pace of disinflation is starting to level off and the PMI’s price metrics remain well above their pre-war levels, which may just embolden a cautious stance by eurozone monetary policymakers.

Finally, business confidence strengthened again in August, signalling a fourth successive monthly rise in eurozone manufacturers’ growth expectations for the coming 12 months. In fact, the overall level of optimism was above its long-term average.

China: Business conditions in manufacturing improve atstronger rate in August

The headline seasonally adjusted RatingDog China General Manufacturing Purchasing Managers’ Index™ (PMI) posted above the 50.0 no-change mark for the ninth month running in August, indicating an improvement in manufacturing conditions. The current upturn is the longest in five years. The PMI rose to a two-month high of 51.5 from July’s 50.9, and had positive contributions from four components, the exception being employment which was neutral.

New orders placed with Chinese manufacturers rose for the fifteenth consecutive month in August, the longest period of growth since 2018. Firms linked rising orders to improved market conditions, stronger client demand, new clients, export growth and business development. The rate of expansion accelerated since July and was greater than the long-run series average, aided by the fastest rise in new export business in six months.

Stronger pipelines of new work led to a faster increase in Chinese manufacturing production in August. Output has risen for nine consecutive months, and the latest expansion was the strongest since May.

Stronger growth of new orders led to a further increase in the level of outstanding work. Backlogs rose for the seventh month running, and at the fastest rate since March. Meanwhile, stronger output growth led to inventories of finished goods expanding the most since September 2025.

Although new orders and backlogs rose in August, manufacturers held employment steady following increases in June and July. Consumer goods manufacturers continued to raise their staffing levels, but this was offset by lower workforces in the intermediate goods and investment goods sectors.

Firmer demand conditions led Chinese manufacturers to order more inputs in August, having previously cut purchasing in July. This contributed to a build-up of input stocks of purchases for the ninth month running, the longest sequence since 2006-07. Despite rising demand for inputs, suppliers’ delivery times were little-changed compared with July.

August survey data signalled a rise in cost pressures at manufacturers. The rate of input price inflation accelerated for the first time since April, but remained relatively modest. Higher costs reflected rising raw material prices, especially metals and oil, supplier adjustments, market volatility and stronger demand.

Although input prices rose further in August, Chinese manufacturers reduced their output prices for the first time in 2026 so far. This was linked to strong market competition and promotions, though the overall reduction was only marginal.

The 12-month outlook for production in the Chinese manufacturing sector remained positive in August. Optimistic forecasts were linked to rising market and client demand, new product launches, business development, improved macroeconomic conditions, expanded production capacity, technical upgrades and new client acquisitions. That said, the overall degree of confidence was the softest since January.

Japan: New business increases at fastest rate since January 2018

The headline S&P Global Japan Manufacturing Purchasing Managers’ Index™ (PMI) climbed from 54.5 in July to 54.9 in August, signalling an improvement in the health of the sector for the eighth month in a row. Furthermore, the rate of increase was the strongest recorded since April and the second-steepest since January 2022.

Stronger growth in new orders was the principal driver of the improvement in the headline reading. Notably, the amount of new business received by Japanese manufacturing firms increased at the sharpest rate in over eight-and-a-half years.

Panellists reported that sales had been supported by firmer demand conditions, new client enquiries and robust sales for products such as semiconductors and AI-related products.

New export business likewise rose at an accelerated pace that was the quickest since the start of 2018, with firms noting greater demand across North America, Southeast Asia and China in particular.

Goods producers in Japan responded to higher intakes of new work by raising their production levels again in August. Furthermore, the rate of expansion eased only slightly since July and was the second-quickest since February 2014.

Employment across Japan’s manufacturing industry also remained on an upward trajectory as firms looked to expand their operating capacity. Furthermore, the rate of job creation was the fastest seen since February 2018 and solid. Although payrolls rose further, outstanding business continued to increase midway through the third quarter. Notably, the rate of accumulation held close to July’s multi-year record.

Higher output requirements led to a sustained increase in purchasing activity, which rose to the greatest extent since April 2022. However, supply chains remained under notable pressure, partly due to disruption stemming from the war in the Middle East, but also product shortages. As a result, the time taken for inputs to be delivered continued to lengthen at one of the fastest rates seen over the past four years.

Longer lead times limited the rate of inventory growth, with stocks of purchased items rising at a slower and only marginal pace. Meanwhile, stocks of finished goods continued to fall slightly.

The rate of input price inflation across Japan’s manufacturing industry remained historically sharp in August. That said, the latest upturn in costs was the slowest seen since March. Operating expenses increased due to a combination of higher raw material and oil prices, in part driven by the conflict in the Middle East, as well as a weak yen exchange rate, according to panellists. As a result, factories continued to raise their selling prices sharply.

Japanese manufacturing firms were generally optimistic that output will continue to increase over the next year in August. Moreover, the degree of positive sentiment was the highest recorded in six months and above the historical trend. Companies often projected further increases in customer demand, particularly for semiconductors and AI-related technology.

We get the North American PMIs later today but it is clear that

• the AI boom is global
• supply conditions are worsening with rising risks of shortages in critical inputs
• costs continue to be driven by disruptions linked to wars and supplier bottlenecks around the Strait of Hormuz
• output prices keep rising strongly, except in China in spite of strong input inflation

Import prices have sharply accelerated in 2026. IT product prices are obviously exploding but rising commodity prices are also increasingly impacting goods inflation.

(The Daily Shot)

Trump says US will refill Strategic Petroleum Reserve using Venezuelan oil

Trump said ⁠in a social media post that the “topping ​out” process will begin shortly, describing the Venezuelan ​oil as a “Gift from Venezuela to the People of the United States.”

Well, don’t hold your breadth on this other Trumpism.

Utilizing Venezuelan crude to replenish the depleted SPR faces major physical, logistical, and geopolitical barriers.

• One, the SPR is designed to store light sweet and medium sour crudes. Venezuelan oil is extra-heavy crude (p.5-12 API) and bitumen (like oil sands). This thick, tar-like oil fails the minimum API gravity requirements for the SPR.
• Two, Venezuelan crude is highly “sour,” containing high levels of sulfur (4-5%) and heavy metals. Injecting it directly into underground salt caverns can damage the infrastructure and degrade long-term storage viability.

The WaPo:

Even if the opaque, controversial agreement announced Friday night triggers a surge of investment in oil production, industry insiders and analysts say substantial amounts of new crude would not flow out of Venezuela for years.

That much was evident in the shrug with which oil traders responded to the deal. Prices didn’t come down at all over the weekend. They went up. (…)

“Everyone cheering the Venezuela deal thinks a flood of cheap oil is about to hit and pull gas prices down. It isn’t,” Tracy Shuchart, senior economist at futures trading platform NinjaTrader, posted on X.

“The barrels that could actually move a U.S. pump price are 5 to 15 years out,” she wrote.

Meanwhile, from National Bank Financial:

“Perhaps more important is the trend in refined petroleum products, such as gasoline and diesel. Refining margins have surged as global refining capacity has tightened, partly reflecting Ukrainian attacks on Russian refineries. Thus, even if traffic through the Strait of Hormuz was to eventually normalize, and if crude prices were to ease, the resulting lower crude oil prices may not translate fully into lower prices at the pump or broader energy costs. That matters because the global economy does not run on crude oil itself, but on the refined products derived from it.”