Originally published by Rivkin
U.S. equity markets and bonds declined on Monday while the U.S. dollar index strengthened following an ISM manufacturing PMI survey (MoM Sep) which expanded faster than forecast. The manufacturing survey had an actual reading of 51.5 against expectations for 50.4, at the same time the new orders sub-component increased to 55.1 from 49.1 previously. The prices paid sub-component remained unchanged at 53 slightly below expectations of a rise to 53.5, however still positive with readings over 50 signalling expansion.
Both the S&P 500 & Nasdaq 100 finished -0.33% & -0.19% weaker respectively and the U.S. dollar index strengthened +0.27%. Declines in the S&P500 were led by utilities (-1.33%) and financials (-0.68%) with industrials the only sector to finish positive for the session up just +0.07%. Bond yields rose with two-year securities up +3.2 basis points to +0.7976% as was the yield on ten-year debt up +2.1 basis points to +1.6273%.
Elsewhere in the U.S. Fed President of Cleveland Loretta Mester who voted to raise rates in September in an interview with Bloomberg said that “the case would remain compelling” referring to the potential for a rate hike at the upcoming November meeting and should be viewed as “live”. The President of the New York Fed William Dudley continued to argue the case for being cautious when raising rates citing concerns from economists that the risk of a recession is increasing.
In the U.K. the GBP/USD dropped -1.05%, shown on the first chart below, to around the lowest levels in three months against the dollar as Prime Minister Theresa May addressed the Conservative Party’s annual conference. Comments spurred bets that the U.K. is likely heading for a “hard” Brexit preferring the curb immigration at the expense of access to the free market. May has also stated that article 50 of the Lisbon Treaty will be activated by the end of March 2017 and formal negotiations for the U.K. to withdraw from the EU will begin.
U.K. manufacturing continued to show positive signs as the Markit PMI manufacturing survey (MoM Sep) surpassed estimates of 52.1 with an actual of 53.2 add to data following the Brexit which has been stronger than forecasts. Despite the recent stronger data the Bank of England continues to maintain a fairly dovish view, willing to see through higher inflation in the near-term and the decent potential for a rate cut before the year end if economic forecasts are relatively unchanged in November from the August estimates.
The drop in the Pound helped boost U.K. equities with both the FTSE100 & FTSE250 gaining +1.22% & +1.75% respectively. At the same time yields on government bonds declined, two-year debt yields down -1.6 basis points to +0.094% as did the ten-year yield down -1.7 basis points to +0.731%. In mainland Europe the EUR/USD traded -0.25% weaker while equities gained, the Euro Stoxx 600 & DAX up +0.09% & +1.01% respectively.
Commodities prices were broadly mixed on Monday, oil continued recent gains following OPEC decision to cut output by around 750,000 barrels per day both Crude Oil & Brent crude oil finished +0.87% & +1.2% higher respectively. Copper finished -0.79% weaker, natural gas gained +0.07% as did the Thomson Reuters CRB index up +0.39%. Precious metals spot gold and Silver were weaker -0.30% & -1.75% respectively as the U.S. dollar strengthened.
Asian markets were generally higher on Monday, Japanese equities were boosted by a -0.29% decline in the Yen with both the Nikkei & Topix indices up +0.90% & +0.60% respectively. Locally the S&P/ASX 200 finished +0.78% higher however looks set for a weaker open this morning with ASX SPI200 futures down 22 points. The AUD/USD is +0.25% higher overnight ahead of today’s RBA monetary policy decision at 2:30pm AEST. For today’s meeting there are almost no expectations of a rate cut as the RBA adopts a “wait and see” approaching following the August cut to a record low 1.5%.
Data releases:
· Australian Building Approvals (YoY Aug) 11:30am AEST
· RBA Rate Decision (Oct 4) 2:30pm AEST
· Japan Consumer Confidence Index (MoM Sep) 4:00pm AEST
· U.K. Markit Construction PMI (MoM Sep) 7:30pm AEST
Chart 1 – GBP/USD
Source: Rivkin, RivkinTrader