U.S. equity markets climbed higher on Tuesday before closing modestly below the respective August 15th all-time highs with both the S&P 500 & Nasdaq 100 up +0.20% & +0.21% as the U.S. dollar index was unchanged, up just +0.03%. Data in the U.S. showed that the housing market continues to strengthen as new home sales (MoM Jul) increased to the highest level in nine years up 12.4% or 654,000 vs estimates for only a 582,000 increase.
Elsewhere the Markit Manufacturing PMI survey (MoM Aug) decreased from 52.9 to 52.1 missing forecasts of a reading of 52.6. A headline figure above 50 signals expansion suggesting manufacturing will help contribute to GDP while aslowdown in the overall order book growth in the survey suggesting waning domestic demand and an only marginal increase in employment points to uncertainty by manufacturers about the economic outlook.
The first chart below shows the S&P500 & VIX indexes, from a technical point of view while the break to new all-time highs is very encouraging the strength of recent gains appears to be fading with the price struggling to close decisively higher. The new all-time high on August 15th has not been confirmed by momentum indicators, forming what is known as bearish momentum divergence. While the price can still certainly move higher from here the formation of this divergence along with very low VIX levels suggests there is the heightened risk of a pause or pullback in the near-term, although any near-term weakness is likely to be merely corrective and should find support around the 2,100 level.
European equity markets were higher across the board, led by gains in the DAX & Euro Stoxx 600 up +0.94% & +0.93% respectively while the Euro declined -0.17% as the Markit Composite PMI (MoM Aug) increased from 53.2 in July to 53.3. The headline figure was boosted by an increase in the services PMI to 53.1 from 52.9 as manufacturing PMI weighed on the headline figure with a reading of 51.8 down from 52.
Separately in Europe a measure of consumer confidence (MoM Aug) declined to -8.5 vs estimates of a decline to -7.7. The survey measures the level of optimism consumers have about the economy and has been in decline for the past four months reflecting a decrease in sentiment that is likely to weigh on consumer spending and therefore inflation.
Japanese equities declined on Tuesday with both the Nikkei & Topix indexes -0.61% & -0.47% weaker respectively as the Yen finished relatively unchanged against the U.S. dollar. The Nikkei Manfuacturing PMI survey (MoM Aug) painted a mixed picture as it increased to 49.6 from 49.3 in July. Output expanded for the first time in six months at a modest pace helping boost the headline figure although employment dropped as companies cut prices as a result of weaker client demand and the stronger Yen.
Oil prices climbed higher as a report by Thomson Reuters suggested that Iran is “sending positive signals” that it may support an output freeze at next month’s informal talks in Algeria. Quoting unnamed sources the report suggests that while Iran has not decided whether it will join any potential effort it “appears to be more willing to reach an understanding”.
Both WTI & Brent crude oil gained +1.46% & +0.73% respectively while natural gas futures continued to climb higher, up +3.06% taking its two day gain to 6.8% shown on the second chart below. Gas prices have been boosted on forecasts for warmer weather in the U.S. that would be seen to help reduce a supply glut as demand increases for electricity for cooling. Copper prices declined -1.17% alongside precious metals spot gold & silver down -0.07% & -0.45% respectively.
Locally the S&P/ASX 200 index finished +0.70% higher and the market looks to open stronger this morning with ASX SPI200 futures up 18 points in overnight trading.
Data releases:
- Australian Construction Work (QoQ Q2) 11:30am AEST
- German DSP (YoY Q2) 4:00pm AEST
- U.S. Housing Price Index (MoM Jun) 11:00pm AEST
- U.S. Existing Home Sales (Mom Jul) 12:00am AEST
- U.S. Crude Oil Inventories (Aug 19) 12:30am AEST
This article was written by James Woods - Global Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via james.woods@rivkin.com.au or by phoning +612 8302 3600.