Weak data pushes US markets into the red

Heading into the close the FTSE 100 is ten points higher, having come under pressure after weaker US economic data.

Mining sector props up FTSE 

Although still in positive territory for the afternoon, the FTSE 100 has been pushed further away from its seemingly-unreachable 6900 target after ISM data from the US came in worse than expected. A slowing in the pace of growth for new orders and employment was to blame, but there was little good news beyond the headlines to provide any relief.

In non-farms week, the drop in the employment reading is particularly concerning, raising concerns that we will see negative revisions to non-farm figures for the previous two months. However, the FTSE 100 has clung on today thanks to the strenuous efforts of the mining sector, which continues to be buoyed by China optimism. 

Tomorrow’s China purchasing managers index revision is not expected to contain any shocks, but this is evidently still a market that is worried about growth in that economy.

ISM data weighs on US markets

US indices turned red for the first time in five sessions, pushed back by the ISM reading. Most economists had been expecting a small increase that would tie in with the idea that the current quarter is a big improvement on Q1. That idea has taken a knock today, although not seriously. However, the market does now appear to have entered a consolidation phase, with traders taking their cue from the ISM number to book gains and await developments from the European Central Bank and non-farms. Bond markets also remain quiet, as a ‘wait and see’ approach predominates.

Gold and silver find buyers

Gold and silver have finally managed to find some buyers after last week’s rapid declines. Bad US data leaves open the possibility of a more dovish Federal Reserve in the near future, as investors start to think that policymakers will start to feel nervous about their tapering efforts. The rally in equity markets has left precious metals looking distinctly vulnerable but for the moment indices appear to have stalled, with the ECB and non-farms this week causing a general shift into cautious mode among traders. Overall, however, the current situation conspires to send gold and silver lower, and absent a sudden and catastrophic worsening of the global situation the upside remains limited.

Signs of a deteriorating US economy have done little for oil too, and both Brent and NYMEX are busily giving back gains, helped by OPEC reports that point to rising supply. Both oil classes have reached the tops of the current trading ranges, and many traders are now beginning to fear that a reversal is under way.

ECB could spark EUR/USD rally

With an ECB meeting looming on the calendar, EUR/USD traders have been understandably nervous, resulting in a trading range that has barely exceeded forty points for the session. Yet another weak German CPI reading has been pencilled into the column that suggests the ECB will act, and it certainly seems like the selloff in EUR/USD has gone a long way to pricing in any action that the bank can reasonably take with only a month to prepare. Bigger fireworks would really be needed if the ECB is to break the curse of low inflation, but that will take time. An ECB that falters on Thursday could well be the catalyst for a revival in the EUR/USD rally.


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