4 Sept: US manufacturing activity contracts as trade war with China bites. Australian GDP coming up.

By | September 4, 2019

The US$, Treasury yields and stockmarkets are all lower on Wednesday following a miss in the US manufacturing data, which contracted for the first time in three years in August, with new orders and hiring declining sharply as trade tensions weighed on business confidence, raising financial market fears of a recession. The Manufacturing ISM index dropped to 49.1 in August from 51.2 in July, the first contraction in activity in 3 years, and ensured that US markets remained under pressure through the session.  The other main event of the day was Brexit, where concerns about the political chaos in the UK took another turn as an MP resigned from the Conservative Party and ensured that the UK PM, Boris Johnson, lost his working majority to take the UK out of the EU, with or without a deal. At the time of writing, UK MPs the government have just lost the vote to block no deal and it now looks as though an election is imminent.

The real beneficiaries of the session were the metals where Gold/Silver rallied by 1.1%/3.8% respectively. On the other hand, oil fell by 1.5% after the US data as demand looks likely to diminish in line with slower demand.

In the FX markets, while the US$ is mildly lower, it has mostly maintained its recent gains and the DXY remains above 99.00.  The Aud$ has held on above recent lows and recovered a little after the RBA left rates on hold, while the Euro reached a long term technical target and has since seen a mild bounce. Sterling broke below 1.2000 because of the Brexit chaos but then bounced to as high as 1.2100 before settling a little lower at the end of the session.

Looking ahead, Wednesday will see global Services/Composite PMIs, beginning with those for Australia and then heading on to the Caixin China figures ahead of those for the EU and the US. The other major event of the day will be the Australian Q2 GDP (exp 0.5%qq, 1.4%yy), where some analysts are warning of the chances of a negative quarterly figure, which would push the Aud$ sharply lower. Other than that it will be a fairly thin calendar, although note that there is a Band of Canada Interest Rate Decision- at which rates are expected to stay on hold. There are plenty of Fed speakers too, including Bullard, Bowman, Kashkari, Evans and Williams. Have a good day.

Economic data highlights will include:

Wed: Australian CBA/AIG Performance of Services Index, Australian Q2 GDP, Caixin China Services PMI, EU/UK Services PMIs, ECB’s Lane Speech, US Trade Balance, US Composite PMI, Fed Speakers; Bullard, Bowman, Kashkari, Evans and Williams Williams/Bullard/Bowman/Kashkari/Evans

Market moves, in brief:

FX: DXY 99.01 (-0.03%)

Bonds: US10Y; 1.4700% (-2.11%), German 10Y; -0.713% (-1.34%), UK 10Y; 0.342% (-16.75%), Australian 10Y; +0.945% (+5.59%), NZ 10Y; +1.05% (-2.33 %), China 10Y; 3.07% (+0.17%)

Stock Indices: DJI; xxxx%, S+P; xx%, NASDAQ; xxxx%, EUStoxx50; xxxx%, FTSE100; xxxx%, Shanghai Composite; xxxx%,

Metals: Gold $1546 oz (+1.13%), Silver $19.17 oz (+3.81%), Copper $2.5295 lb (+1.2%), Iron Ore $89.55 per tonne (NYMEX) (+5.8%),

Oil: WTI $53.95 pb (-1.53%)

EURUSD: 1.0974
Res  1.0995  1.1015  1.1040
Sup  1.0925  1.0950  1.0900
USDJPY: 105.94
Res  106.10  106.30  106.50
Sup  105.75  105.60  105.45
GBPUSD: 1.2087
Res  1.2105  1.2135  1.2170
Sup  1.2050  1.2015  1.1975
USDCHF: 0.9866
Res  0.9880  0.9900  0.9920
Sup  0.9860  0.9840  0.9820
AUDUSD: 0.6763
Res  0.6770  0.6785  0.6800
Sup  0.6750  0.6735  0.6720
NZDUSD: 0.6338
Res  0.6345  0.6365  0.6385
Sup  0.6320  0.6300  0.6280
S&P.fs: 2905.03
Res  2915.00  2930.00  2945.00
Sup  2890.00  2875.00  2860.00
DJ30.fs: 26113.00
Res  26205.00  26305.00  26395.00
Sup  26035.00  25930.00  25820.00
SPI200.fs: 6515
Res  6535  6555  6575
Sup  6495  6475  6455
XAUUSD: 1547.43
Res  1555.00  1575.00  1565.00
Sup  1540.00  1530.00  1520.00
XAGUSD: 19.25
Res  19.35  19.50  19.70
Sup  19.05  18.85  18.65
WTI.fs: 53.93
Res  54.50  55.05  55.65
Sup  53.35  52.75  52.15