U.S. equities rebounded on Wednesday as ADP employment data showed 179,000 jobs were added month on month in July, while the ISM services/non-manufacturing composite for July decreased to 55.5 from 55.9 in June missing estimates of 56.5. While readings above 50 signal expansion, the slowing rate of U.S. growth highlighted in recent data adds weight to the argument the Fed should not raise interest rates anytime soon. Both the S&P 500 & Nasdaq 100 gained +0.31% & +0.3% respectively as the U.S. dollar index finished +0.49% stronger.
Despite the stronger U.S. dollar, oil prices rose as U.S. gasoline stockpiles declined 3.26 million barrels last week helping offset a gain in crude oil inventories of 1.413 million barrels when expectations were for a 1.75 million barrel decline. Both WTI & Brent crude oil finished the session higher, up +3.34% & +3.83% respectively, however the stronger dollar weighed on other commodity prices with copper down -0.48% and iron ore -0.44% while natural gas climbed +3.88%. Precious metals spot gold and silver traded -0.40% & -1.03% weaker.
European equities were generally mixed as Euro-zone retail sales missed estimates of 1.8% with an actual of 1.6% (YoY Jun), with the DAX +0.26% higher, the Euro Stoxx 600 flat up just +0.03% and the Euro -0.65% weaker. The British Pound GBP/USD declined -0.22% and the FTSE100 was -0.17% lower as Markit/CIPS U.K. composite PMI month on month for July declined to 47.5 against forecasts to be unchanged at 47.7. Elsewhere the Markit/CIPS U.K. composite PMI for July remained stable at 47.4 the same as June.
This adds to the recent weakness we have seen following the U.K. decision to leave the European Union and evidence that the Bank of England should ease monetary policy at its meeting tonight are pricing in a 100% chance of a rate cut. Given this is fully factored in by the markets I would suggest any downside in the Pound tonight would be fairly limited, unless we get a bigger than expected rate cut or other additional stimulus measures, the chart below highlights the Pound which has firmed up following a low in July.
Japanese equity markets traded lower on Wednesday, the Nikkei 225 down -1.88% while the Topix declined -2.17% and the Yen weakened -0.35% despite some positive PMI data. The PMI for services (MoM Jul) increased to 50.4 from 49.4 in June and the composite PMI for the same period increase to 50.1 from 49.0. Meanwhile China showed some mixed figures for similar PMI data, with a measure of services month on month for July decreasing from 52.7 to 51.7 while the composite survey increased to 51.9 from 50.3.
Locally, the S&P/ASX 200 finished -1.35% lower on Wednesday at 5,465.72 while the market looks set for a stronger open this morning with ASX SPI200 futures up 27 points in overnight trading. I’ve included a chart showing a technical view of the ASX200, with momentum indicators remaining highly overbought suggesting the increase risk of a pause or pullback from current levels. While some near-term weakness is expected, overall, recent gains look sustainable with a significant low in place at February of 4,706 and at this stage any declines are expected to be merely corrective. Below current levels there is significant support between 5,400 and 5,300 which will come into focus.
Data releases:
- Australian Retail Sales Ex Inflation (QoQ Q2) 11:30am AEST
- German Market Construction and Retail PMI (MoM Jul) 5:30pm AEST
- Euro-zone Markit Retail PMI (MoM Jul) 6:10pm AEST
- Bank of England Rate Decision and Inflation Report (Aug 4) 9:00pm AEST
- U.S. Initial & Continuing Jobless Claims (30 & 23 Jul) 10:30pm AEST
- U.S. Factory and Durable Goods Orders (MoM Jul) 12:00am AEST
