US Treasuries rallied, pushing bond yields in the United States lower, as traders increase bets that the US Fed will have to take a more assertive approach to managing the unfolding slow-down in the US economy. It’s setting up weak day for the ASX: SPI Futures are suggesting a 120 point drop for the ASX200 this morning.
3. Investors now worried about the US labour market: There is a burgeoning “snow-ball” effect as it relates to market sentiment right now. There’s a sense that fear is feeding on fear, as its wont to do in financial markets when signs of panic emerge. The initial pang was that very weak, and justifiably concerning, US ISM Manufacturing PMI data on Wednesday, which emphasized the trade war’s stifling impacts on the US economy.
But last night, it was a rather small miss in US ADP Non-Farm Employment data that fanned the flames of fear. With investors clearly hypersensitive, the miss in that release introduced the idea that perhaps softening business conditions is spilling into the labour market.
4. Focus turns to next batch of US data: That makes a handful of data releases out of the US in coming days of high-importance. First, will be the release of US ISM Non-Manufacturing PMI data, which will be watched to see if the weakness in US manufacturing is tipping-over into the services sector.
Of greater significance, will be the release of US Non-Farm Payrolls data on Friday night. The labour market, and somewhat by extension, the American consumer, has remained the shining light for the US economy. If the jobs markets, and ergo the outlook for consumption, starts to show signs of turning, this panic in the market can only grow.
5. What a difference a year can make: Colour will also be provided by a speech scheduled for US Fed Chairperson Jerome Powell on Saturday morning, Australia time. To step back a moment, it bares reflecting: it was on this very day last year that the Fed-head made his “a long way from neutral” speech, which began the big stock market sell-off of late 2018. How far the market has come.
Only 12 months ago, the Fed was talking about how much further it needed to hike interest rates to manage a hot US economy. Now, as anxiety about the global economy builds, the market will be waiting to hear about how aggressively the Fed plans to cut rates.
6. Oil prices fall again after US inventory data: In commodities markets, oil remains the primary focus for traders, after prices fell by over 2 per cent during US trade. US Crude Oil inventories data was released last night, and showed a much smaller than expected drawdown in inventories, with 3.1 million barrels of oil, versus a forecast 2.0 million barrels, being held by US energy firms, last week.
Along with the concerns about global economic activity, the lift in inventories added to fears about energy demand, bucking (again) the supply side concerns that had driven price in September, following the drone attack, allegedly perpetrated by Iran, on Saudi Arabian oil production facilities.
7. Risk of a no-deal Brexit slightly higher: Across the Atlantic last night, and UK and European traders were fixed-on UK Prime Minister Boris Johnson’s pitch at the Tory party’s conference, within which the UK PM outlined his final Brexit proposal. The deal centres on modifications to the contentious Irish back-stop, with the UK PM stating that he is comfortable allowing for a no-deal Brexit, should this latest proposal not be accepted by the EU.
Given its considered a low-chance that the EU will accept the deal, market participants have judged these latest Brexit developments to raise the risk once again of a looming “hard-Brexit”. That saw the Pound plunge further into the 1.22 handle overnight.
8. Market watch:
ASX futures were down 120 points or 1.8% to 6493 near 7am AEST
- AUD flat at 67.06 US cents
- On Wall St: Dow -1.9% S&P 500 -1.8% Nasdaq -1.6%
- In New York: BHP -2.7% Rio -3.2% Atlassian -1.2%
- In Europe: Stoxx 50 -3% FTSE -3.2% CAC -3.1% DAX -2.8%
- Nikkei 225 futures -1.9%
- Spot gold +1.5% to $US1501.83 an ounce at 1.22pm New York time
- Brent crude -2.1% to $US57.63 a barrel
- US oil -1.9% to $US52.60 a barrel
- Iron ore flat at $US93.38 a tonne
- Chinese markets are closed for national holidays
- LME aluminium -2% to $US1706 a tonne
- LME copper -0.1% to $US5678 a tonne
- 2-year yield: US 1.48% Australia n/a
- 5-year yield: US 1.43% Australia n/a
- 10-year yield: US 1.60% Australia 0.96% Germany -0.55%
- 10-year US/Australia yield gap near 7am AEST: 64 basis points
This column was produced in commercial partnership between The Sydney Morning Herald, The Age and IG
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Information is of a general nature only.