In focus today
In the euro area, flash inflation figures for August will be released. Following lower-than-expected inflation in France, Spain, Italy, we project euro area HICP inflation to come in at 2.0% y/y, below the expected 2.1% y/y, despite an upside surprise in Germany. For the ECB, we anticipate that the August inflation print will not alter their assessment of inflation, and we continue to expect the deposit rate to remain unchanged at 2% through the rest of the year and in 2026.
From the US, ISM Manufacturing index will be released for August in the afternoon. The preliminary PMI released earlier surprised clearly to the upside, and the regional Fed manufacturing indices are also pointing towards an uptick despite the ongoing political.
Economic and market news
What happened yesterday
In the euro area, the unemployment rate fell to 6.2% in July from 6.3% in June, as widely expected, driven by a reduction in unemployed persons. The decline was primarily led by Greece and Italy, while France and Germany recorded slight increases in unemployment. We expect modest employment growth in the coming years, aligning with workforce expansion, and project an average unemployment rate of 6.2% in 2025 and 6.1% in 2026. The unemployment rate is likely to remain a hawkish argument for the ECB.
Additionally, euro area final manufacturing PMI was revised up to 50.7 in August, making a larger upside than initially reported. The revision was largely driven by France, where the manufacturing sector continues to benefit from lower interest rates and energy prices, a trend we expect to persist for the remainder of 2025.
In Sweden, manufacturing PMI rose to 55.3 in August from 54.4 in July, reaching a new high for 2025. While PMI shows stronger momentum, it contrasts with the less optimistic NIER survey on manufacturing confidence. As PMI often leads, it could signal a potential recovery in the NIER survey. Growth was primarily driven by business volume, new orders and delivery times, with reduced global trade policy uncertainty also contributing.
In Norway, manufacturing PMI fell to 49.6 in August (prior: 51.1), indicating a slowdown in manufacturing activity. However, it is important to note that hard data has been significantly stronger than PMI signals throughout Q2 and into Q3, so we currently place limited emphasis on PMI readings. Employment dropped to 42.8, the lowest since May 2020, aligning with Friday’s NAV figures and reflecting weakening labour demand.
Equities: European equities edged slightly higher yesterday, rising 0.3% (Eurostoxx 50), while US markets were closed. Industrials outperformed, likely buoyed by the slight positive revision in the European manufacturing PMI and the record-low unemployment rate in the euro area. Additionally, Swedish PMIs delivered very strong results. Sweden often leads the European manufacturing cycle by approximately nine months, making this noteworthy. The headline PMI printed at 55, with orders accelerating to an index level of 57. This indicates a sharp sequential improvement in August and represents the best momentum in the sector since 2021/2022.
FI and FX: NOK and SEK were on the rise yesterday – the latter supported by stronger PMIs, while the former shrugged off disappointing PMIs. EUR/SEK slipped below 11.00 for the first since June. EUR/USD hovered in the 1.16-1.17 range despite heightened French political uncertainty. Bond yields in Europe rose a couple of basis points yesterday, with UK slightly underperforming European peers. Tightening pressure on the 10Y German swap spread prevailed yesterday.