Good morning from Europe.

Both AUD and NZD are down firmly during Asian hours, as markets are turning sour on industrial metals (Iron Ore down 4% and Steel down 2.5%) given the signs we are seeing from China, where growth has taken a U-turn since the rebound looked inevitable a few weeks ago. Our nowcast on Chinese air pollution has went through the floor since we reached pre-covid levels in June, and the attempts we are seeing from both the Chinese government and PBoC haven’t really had any effect in boosting Chinese growth.

Parts of the market seem to be locked in on the fact that growth is all of a sudden en route for a rebound with growth consensus having shifted somewhat away from the recessionary expectations we saw after the weak July NFP report, now expecting a 50k rebound in MoM payrolls compared to the latest figure, with the unemployment rate also expected to drop by 0.1 percentage points. Interestingly for Friday, there is only 1 out of 69 qualified economists (in the BBG survey) calling for an NFP number below July. That is interesting in itself, even if no-one’s calling for 200k. There is a wide-spread consensus around a decent rebound compared to July.

While the growth picture is not necessarily horrible yet, the vibes we are getting from manufacturing and employment across the globe are starting to rhyme. Our with-held tax nowcast (chart 1.b) from the US has turned negative since July, which has historically not been great news for unemployment, and the congestion data we have has also started to slow. While growth has held up decently in Europe, the slowdown we’re seeing in the US is slowly starting to spread to Germany, with Volkswagen announcing potentially their first ever closure of a manufacturing plant, which is not any good news for the cyclical rebound story.

Chart 1.a: Our China nowcasts are through the floor recently