Financial markets were not impressed by the ISM manufacturing index which surprisingly held above 50 in August. Indeed, the details of the report suggested US economy is deteriorating and the manufacturing sector still has high chances of falling into the contractionary territory in September. Meanwhile, manufacturing PMIs showed weakness in most of the countries last month, damping optimism of investors. Following equities' coattail, oil prices initially climbed higher but then reversed. Losses were, however, limited by the threat of a storm in the Gulf of Mexico. Failing to re-test the 90-level, the front-month contract for WTI crude oil pulled back and ended the day flat at 88.93. The equivalent Brent crude contract lost -0.31% to settle at 114.29.

ISM manufacturing index eased to 50.6 in August from 50.9 a month ago. This was better than consensus of 48.5. However, the components were not as encouraging as the headline reading suggested. 'Employment' fell to 51.8 from 53.5 while 'production' dropped to 48.6, the lowest level since May 2009, from 52.3. The biggest driver was 'inventories' which climbed +3 points to 52.3. However, the new orders to inventory index continued to decline, suggesting that the headline reading has high chances of falling below 50 next month. Manufacturing data for the rest of the world was no better. As we mentioned yesterday, China's PMI climbed +0.2 points higher to 50.9 in August. While domestic demand stayed firm, exports weakened as affected by the headwind faced in advanced economies. Eurozone's PMI was revised lower to 49 in August from preliminary reading of 49.7 while UK's reading surprisingly fell to 49 from 49.1. In Switzerland, the SVME PMI slipped to 51.7 in august from 53.5 in July. The market had anticipated a bigger drop to 51.2. US' ISM manufacturing index might have slipped to 48.5 (contractionary territory) in August from 50.9 in July.

Also in the US, initial jobless claims fell -12K to 409K in the week ended August 27, in line with expectations, but the 4-week average edged up for a second consecutive week to 410K. The focus of the day is the August employment report. Consensus forecast shows that the number of non-farm payrolls probably increased +90K, down from 117K in July, while the jobless rate stayed unchanged at 9.1%.

Meteorologists forecast that a low-pressure system in the Gulf of Mexico has 80% chance of developing into a tropical storm. Oil companies such as BP, Anadarko Petroleum and Royal Dutch Shell have begun evacuating staff. As a place contributing to 27% of total US oil supply, 5.7% of oil production in the Gulf of Mexico has been shut as the weather gets worse. This probably explained why Nymex crude performed better than Brent crude yesterday. Yet, the WTI-Brent spread remained at exceptionally wide level that we believe unjustifiable.