As we have a light economic calendar today, manufacturing and services PMIs in the Eurozone provide a temporary trigger to asset price movements. European bourses opened higher despite weaker-than-expected PMIs while commodity prices remain trading within narrow ranges. Volumes are thin as investors have not yet got a hint about the macroeconomic prospects.

Manufacturing and services PMIs in the 16-nation region slid to 55 (previous: 56.7) and 55.6 (previous: 55.8) respectively in August. While a reading above 50 signal expansion underway, a decline indicates the pace of growth is decelerating. In Germany, the manufacturing PMI slipped to 58.2 from 61.2 while the services index surprisingly rose to 58.5 from 56.5 in July.

Currently trading as 74, the front-month contract for WTI crude oil edges higher after plunging to a 6-week low of 73.44 last week but near-term risks are skewed to the downside. Slowdown in the US and China are expected to diminish oil demand.

Sinopec and CNOOC, 2 of the giant oil companies in China, reported stronger-than-expected earnings results last week. CNOOC's net profit jumped +110% y/y to RMB 26.0B in 1H10, compared with consensus of RMB 21.5B, as driven by record high production, better realized oil price and lower effective tax rate. The management stated that M&A will 'be an important driving force for the company's medium- and long-term growth'.

For Sinopec, net profit soared +6.66% y/y to RMB 35.5B in 1H10. While the E&P sector jumped +300% to RMB 22.0B, it's partly offset by slump in the refinery sector which plunged -71% to RMB 5.69B. Refiners in China have been under the threat of margin squeeze as the government controls fuel prices. Under China's new oil pricing mechanism announced in 2009, the National Development and Reform Commission (NDRC) may adjust domestic oil product prices when the moving average of 'international crude oil prices' (Brent, Dubai and Cinta) change more than 4% of a period of 22 working days. However, recent price adjustments suggested that NDRC has reacted more swiftly to price reduction and price hike. This represents a long-term threat to Chinese refiners. It's likely that refinery margins will remain under pressure in the third quarter if the government does not increase oil-product prices again soon. In light of the situation, Sinopec's management said it will expand the E&P business to counter the risks in the refinery sector.

Petrochina is scheduled to report its results on Thursday. Analysts expect net profit rose +32.1% to RMB 66.7B in 1H10. Similar to Sinopec, growth should have been driven by the E&P sector while the refinery margins were a drag to earnings.