Deteriorating manufacturing picture for markets

Trade woes coupled with poor showings from both China and the latest US ISM manufacturing PMI cease to provide any positivity for markets with the risk sentiment staying soft going into Wednesday.

US ISM manufacturing PMI in contraction

Sure enough, the US-China trade issue remains dominating the headlines with the latest being President Donald Trump’s warning that a trade deal would get ‘much tougher’ in his potential second term. Although it represented broadly positioning language from the President once again, it nevertheless highlights the tension going into a month with no prospective details on when the next US-China meeting may be.

More importantly, however, is the sharp decline seen in the August ISM manufacturing PMI reading out of the US. Coming in below consensus at 49.1, this marks the first re-entry into contraction territory – a reading below 50 – since 2016. In fitting into the global manufacturing picture, this is perhaps one of the stronger signs that the US is likewise feeling the weight from the on-going uncertainties alongside the world. One should also note that with the impending fresh tariffs for August, front-loading could potentially have distorted the data as well that would perhaps invite a strong reaction should September’s manufacturing PMI likewise reflect dismal performance.

Against the backdrop of recession concerns, US treasuries were picked up with US 10-year treasury yield headed down to 1.46% levels into the end of Tuesday. The return of Wall Street had also seen to the industrial sector taking the biggest hit from both the trade woes and economic data disappointment, trading 1.42% lower in the session. This nevertheless keeps the index in the ongoing rangebound trade.

Source: IG Charts

Brief respite for Brexit concerns

Separately, following the buildup of hard Brexit woes, the pound was seen recovering with UK lawmakers taking over control of the parliament and is set to vote on a motion delaying the October 31 Brexit deadline, thus providing a glimmer of hope. The reaction had nevertheless been slight seeing the chaos that looks to continue for the UK parliament and the impasse the Brexit situation sustains even if the October 31 Brexit deadline should be extended. Along with our UK colleague’s stance, the likelihood of an election is uncertain, but given the latest set of developments, GBP would be one to brace for further volatility down the road to the October 31.

Asia open

As told above, the leads on hand fall on the weaker end and Wall Street’s return had been one to dampen sentiment as well. Looking forward to the session ahead, the imminent Australia Q2 GDP coupled with China’s Caixin services PMI may not be ones to count on to drive any positive sentiment. The former is expected to present the weakest GDP growth reading in nearly 20 years, one to watch for the Aussie after RBA kept rates unchanged yesterday. The Bank of Canada meeting and a series of Fed speakers will also be due in the Wednesday session.


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