Eurozone inflation edged up to 2.1% in August, keeping it broadly in line with the European Central Bank’s 2% target after several months of stability. Core inflation, which excludes the more volatile categories of food and energy, held steady at 2.3%, while services inflation eased slightly to 3.1% from 3.2% in July. The moderation was driven largely by softer energy prices, though the headline figure still came in a touch above economists’ forecasts. With the EU–US trade deal now agreed and the ECB’s rate cuts continuing to filter through, concerns about inflation spiralling appear to have eased. Investors largely expect policymakers to leave rates unchanged at September’s meeting, with only limited adjustments later in the year should incoming data continue to soften – a view reinforced by the recent decline in Eurozone bond yields. Meanwhile, unemployment fell to 6.2% in July from 6.3% the previous month, underscoring some resilience in the labour market. European equities, however, remained under pressure on Tuesday, although this was weighed more by political uncertainty in France than by the inflation figures.
On Monday, the Caixin General Manufacturing PMI surprised to the upside, rising to 50.5 in August from 49.5 in July, marking a return to expansion after last month’s contraction. The index, which tracks private-sector manufacturing and services activity, showed stronger output and a slower decline in new orders, helped by the mid-August extension of the China–US tariff truce and recent domestic policy support. Even so, with peak shipping season approaching, tariffs remain a drag on trade flows, with US retailers expected to trim orders – a dynamic that could tighten supply chains and add to further price pressures.
At this week’s Shanghai Cooperation Organisation summit, Xi Jinping called for a reshaped global order centred on the Global South, promising financial support, expanded cooperation in AI and space, and advocating the creation of an SCO development bank to reduce dependence on the dollar, with backing from President Putin and Prime Minister, Modi. Putin linked a resolution in Ukraine to NATO’s expansion but suggested his recent talks with Trump offered a possible path forward, as China and India continue to underpin Russian export revenues by purchasing crude despite sanctions.
And all the while China continues attempts to further its place in the invisible competition of price wars and algorithm discrimination. This week, policymakers announced a re-write of pricing laws – which were established in 1998 – seeking to expand regulation to services and online intermediaries, strengthen penalties for price gouging and, ultimately, promote fairer competition and market stability.
Still to come this week we have US jobs’ report data which is hotly anticipated by the market for what it may indicate about the fed’s upcoming policy meeting decision in September. We also have both Eurozone and UK retail sales.
Amy Sharpe, Investment Analyst
