Investors cautious after soft US data
Tapering nerves receded further overnight after a very soft ADP Employment number and the ISM Manufacturing PMI employment sub-index contracted. That has taken the heat out of expectations for this Friday’s US Non-Farm Payroll data and further reinforced Fed Chairman Powell’s cautious approach in the markets’ minds.
Equities traded sideways, with tech outperforming in an old-school flight to quality. Although US yields remained mostly unmoved, the reduction in tapering fears impacted the US dollar, which fell sharply versus the major currencies overnight. That was helped along by more hawkish rhetoric emerging from Europe after higher recent Eurozone and German inflation numbers.
OPEC+ took only 30 minutes at their JMMC meeting to approve a further 400,000 bpd of production this morning, in line with their previously announced schedule. That sent oil prices lower, but a 7 million barrel drop in official US Crude Inventories saved the day for black gold.
Asian markets are trading cautiously today as the street moves into a pre-Non-Farms holding pattern. An early rally in China equities looks in danger of being snuffed out by, you guessed it, the Chinese government. Reuters is reporting that 11 ride-hailing firms have been summoned by regulators and the Transport Ministry to a “meeting.” Another day, another clampdown. Dip-buyers in China equities will keep dipping their toes. However, I believe we are a long way still from repricing China equities to a level that balances the government’s “enthusiasm” for common prosperity.
Economic releases in Asia today have been mostly positive. South Korean final Q2 GDP improved slightly to 0.80% MoM and 6.0% YoY. That positive note has been offset, to some extent, by August Inflation coming in higher than expected at 0.60% MoM and 2.60% YoY. The Korean won has barely reacted, circling in a Non-Farm holding pattern, but the prospects of further Bank of Korea rate increases loom, and that is weighing on local equity markets.
Australia’s Balance of trade for July outperformed, rising to AUD 12.117 billion, while Home Loans only contracted by -0.40%. Both exports and imports increased, and despite the Covid-19 lockdowns, the economy is proving remarkably resilient. Improving risk appetite saw the Australian dollar rally powerfully overnight. Still, equities received no solace from the data today, focusing on warnings from the medical establishment about the health system’s ability to weather a full reopening once vaccination targets have been met.
The data calendar is a wasteland across Asia and Europe for the rest of the day. US Initial Jobless Claims will receive more than usual attention after the ADP data and ahead of the US Non-Farms. But most eyes are likely to be focused on US Factory Orders for July. In the bigger picture, though, it looks like we are in for a headline-driven 24 hours in financial markets until tomorrow’s main event in New York. Currency expectations are for a 750,000 jobs Non-Farm Payroll print. With the taper doves in control at the moment, a much higher number is likely to have the greatest surprise factor. That said, the street now looks locked and loaded for a good old-fashioned FOMO-buy-everything-sell-US dollars move if the data is soft.
