The waves of the trade war appear to be washing up on United State’s shores finally as the ISM Manufacturing PMI plunged to 2009 levels, but the story isn’t as clear cut elsewhere.
There was no doubt about it, the ISM Manf. PMI was a shocker, falling to 47.8 when recovery to 50.1 was expected. The various sub-indexes all told a grim story as well following equally weak Markit Manufacturing PMI’s from Europe earlier in the day. The effects were predictable, Wall Street stocks saw a mad scramble for the exit door, U.S. yields fell as did the dollar, and gold pulled itself up from the canvas for a comeback Mohammed Ali would be proud of.
Amidst all the doom and gloom from the United States and Europe, many other countries around the world refused to let the rain fall on them. The Markit Manufacturing PMI’s of Great Britain, Indonesia, Myanmar, Vietnam, Thailand, Taiwan, Malaysia, Philippines, Mexico, Brazil and yes, the United States, all rose yesterday.
The Markit PMI’s for Europe and periphery countries like Norway were universally dismal. European stagnation was probably on the cards, trade war or not, due to the continents aversion to fiscal stimulus, budget deficits and maintaining the worlds largest welfare state. The trade war has merely exposed Europe’s weak underbelly sooner; it is not the cause of it.
As investors looked at the ISM headline and hung their heads in despair, I would argue the picture isn’t so black and white, even in the United States if the Markit PMI from there is to be believed. The U.K, core Latam and Emerging Asia seem to be holding their own, and it is far too soon to say that the U.S. is about to wither on the vine. If they are doing so in such a toxic global trade environment, then imagine how they may perform if we get a trade breakthrough in the coming weeks. It’s not all doom and gloom in the Markits.
China and India are all on holiday today, which should ensure the fall out from the overnight session is somewhat limited as participation and liquidity drop. Only Japan Consumer Confidence at 1300 SGT breaks up a dull Asian data calendar today. Most attention is likely to be focused on the U.S. ADP Employment change ahead of Friday’s Non-Farm Payrolls.
Equities
The unexpected fall if the ISM Manufacturing PMI torpedoed an already nervous Wall Street below the waterline overnight. The S&P 500 fell 1.2%, the Nasdaq fell 1.1%, and the Dow Jones fell 1.3%.
Early Asian markets have already taken fright with the ASX lower by 1.4%, which, given Australia’s role as a barometer of global, isn’t a surprise. The Nikkei 225 is 0.6% lower, a somewhat more respectable performance given Wall Street’s overnight tumble.
Regional markets, as they open will no doubt join the fray and resolve lower, but if the Nikkei’s initial performance is to go by, the fall-out may be more limited then the doomsayers predict.
Currencies
The dollar gave up most of Monday’s gains overnight as yields and stocks wilted after the ISM release. The dollar index fell o.25% to 99.13.
USD/JPY fell 0.30% to 107.75 as investors moved into safe-haven Yen with the USD/JPY poised just above daily technical support at 107.60 with the next target 107.00.
Both the Australian and New Zealand Dollars though remain on the ropes after yesterdays dovish RBA cut and fall in NZ Business Confidence. The AUD fell 0.70% to 0.6710 having dipped below 0.6700 yesterday. The bounce was weak though, and critical support at 0.6680 remains nearby, with a daily close below it signalling a possible substantial down move. The Kiwi tested 0.6200 yesterday but held firm to bounce back to 0.6250 supported by selling in the AUD/NZD cross. 0.6200 remains a vital level though with a daily close below signalling further losses towards 0.6000.
Regional currencies will be subdued today with India and China away. They should find support from a weaker dollar overnight, but the benefits will be limited though, as short-term trade concerns, rightly or wrongly, hang over Asian markets.
Oil
News that OPEC daily oil production in September had hit eight-year lows gave a welcome respite to oil which has endured a tough week at the office. It was only a respite though, as the low ISM print saw sellers return on fears that the trade war had finally hit U.S. shores. In the end, the two factors cancelled each other out with Brent Crude falling 0.30% to $60.10 a barrel, and WTI dropping 0.45% to $54.10 a barrel after a choppy session.
Both Brent and WTI have erased those losses in early trade as buyers emerge ahead of the $60.00 and $54.00 levels respectively. Volume is low; however, due to regional holidays. We would expect and rallies to quickly run out of steam as we approach $61.00 and $ 55.00 a barrel. For now, a possible slowdown in America will outway any benefits accrued from lower OPEC production.
Gold
Gold just won’t go without a fight it seems, having fallen as low as $1459.00 an ounce, it picked itself up, bloodied and bruised to finish 0.45% higher at $1479.00 an ounce.
Gold, of course, benefited from the flight to safety evident after the ISM release. The rally though looks forced by circumstances, not fundamentals. The previous support at $1483.00, which is now resistance, remained intact overnight; it should be quite formidable. Support is now the overnight low at $1459.00.
Gold may see some haven based buying in Asia initially, but reduced liquidity and a sense of foreboding among longer-term bulls persists and will limit gains.
