With prospects for a tightening of U.S. policy having been kicked into touch after the disappointing U.S. growth data on Friday, a consequential risk-on vibe in markets should lead to out-performance of peripheral markets in Europe. Chinese PMI data was also softer than expected. The European bank stress test results, releases after the markets closed on Friday, held no real surprises. Italy’s Monte dei Paschi di Siena came out worst, as widely expected, and with the bank managing to pull a last minute rescue proposal out of its hat, reportedly with the tentative backing from the ECB, the fallout should be limited.

Chinese PMI Data Disappoints

The official Purchasing Managers’ Index eased to 49.9 in July from the previous month’s 50.0 and below the 50-point that designates expansion and contraction.  Economists has expected that the PMI would come in at 50.

UK final manufacturing PMI for July unexpectedly revised lower, to 48.2 from the preliminary estimate for 49.1. This follows 52.1 in June, with the deterioration blamed squarely on disrupting uncertainties thrown up the June-23 to exit the EU. The preliminary estimate comprised 80% of the survey’s responses, and the big revision suggests that the first month after the Brexit vote was even worse than previously thought. The final composite PMI will be released on Wednesday alongside the final services PMI reading. The flash composite PMI dove to 47.7, consistent with Q3 GDP of -0.4%.

Sterling[i] was lower following the data. BoE MPC member Weale, who is by reputation a relative hawk on the policy-setting Committee, suggested last week that the dismal preliminary PMI data had convinced him that the policy loosening would be justified.

Final Eurozone manufacturing PMI was unexpectedly revised higher, slightly, to a reading of 52.0 versus the preliminary estimate of 51.9. This is down from 52.8 in June, indicating an abatement in the pace of expansion in the sector. Weakness in France and in peripheral economies weighed on the pan-region reading, offsetting a rise in activity in Germany and some of the smaller northern European member nations. The lop-sidedness was strong, with France showing a sub-50.0 contractionary reading of 48.6, although this was a four-month high and a rise from 48.3 in June. Greece’s reading was 48.6, while at the other end of the spectrum, Germany’s was 53.8, which is the lowest reading in two months.