Growth concerns heighten
A week expecting stronger US data had so far been a disappointment with the focus now tuned towards slowing economic momentum.
Fed cut hope rises
September’s ISM non-manufacturing data had been the latest to join the ISM manufacturing index and the ADP employment figures to disappoint the market this week. Coming in at 52.6, the decline had been greater than the 55.0 expected by the market and marks the weakest number seen since July 2016. This is significant for the macro picture, one representing that the US is likewise giving up some of its resilience. In particular, the non-manufacturing sector appears to likewise fall prey to the economic slowdown contagion from the manufacturing side. As for the US dollar, prices had fallen through the week though remaining supported from a broader perspective. As it is, the focus shifts ahead towards the set of labour market updates into the end of the week. Positioning in the market seems to suggest that there are reduced hopes of seeing the 145k consensus for non-farm payrolls met.
The good news for markets, however, may be the increased Fed cut hopes helping to see Wall Street retrace some of its steep early October losses. According to the CME FedWatch tool, bets for a rate cut had heightened to 95.2% overnight from 88.5% a day earlier. Interest had also gathered for the cut to arrive as early as the Federal Open Market Committee (FOMC) meeting this month. It may take a couple of poorer economic readings to convince the Fed to bring forth another round of easing of rates, while Fed comments would likewise be watched for any increased dovishness. Given the series of geopolitical events in the coming days including US-China trade talks, it may only be post the updates will we have a clearer sign on the direction for Fed rates this month. In the near-term, expect the market to remain whipsawed by the data updates.
Source: IG Charts
After seeing the Dow crashing more than 800 points in the first two sessions of what could be a volatile October, we have noted some signs of stabilization in the overnight session, one to aid with the steadying of Asia markets. That said, the downtrend as seen from the likes of the MSCI Asia Pacific ex-Japan index for Asia markets continues to reflect the cautiousness with respect to the riskier Asia equities that may take at the very minimum of an improvement in US-China trade relations to cause a substantial reversal.
Focus ahead to the jobs report out of the US as said, alongside the series of Fed speaker we are expecting into the end of the week. Couple of releases will also be seen out of Asia prior to which.
Yesterday: S&P 500 +0.80%; DJIA +0.47%; DAX -2.76%; FTSE -0.63
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