A much weaker than expected US ISM non-manufacturing (services) print last night has all but scotched any chance traders see for a September FOMC rate rise.
That’s given stocks a little lift, saw US bonds rally and saw the US dollar get hammered across the board losing 1% in index terms.
That’s lifted the Australian dollar back toward 77 cents, saw gold run $22 higher, and released the British pound to its highest levels since mid-July.
But it hasn’t helped local stocks with the September SPI 200 contract down 11 points this morning after yesterday’s fall.
All eyes are on the release of second quarter GDP in Australia at 11.30am today. It’s not only expected to take Australia’s run without a recession to 25 years but print a super strong 3.3% for the year.
Here’s the scoreboard (7.36am):
- Dow: 18538 +46 (+0.25%)
- S&P 500: 2186 7 (0.3%)
- SPI 200 Futures (September): 5,401, -10 (-0.2%)
- AUDUSD: 0.7681 +0.0137 (+1.8%)
The top stories
1. ISM services fell to its lowest level since February 2010 and traders are betting the Fed is out of play. Akin Oyedele reports growth in the US service sector slowed to a six-year low in August, according to the Institute of Supply Management.
The monthly non-manufacturing purchasing manager’s index on the service sector came in at 51.4 for August. That’s the lowest reading since February 2010, when the index pulled out of contractionary territory for good following the Great Recession.
That’s seen a further reduction in expectations of a Fed hike in September. The CME Group’s FedWatch tool says the chance of a hike is now down to just 18% for this month and less than 50% for December. Here’s September graphically:
2. The Australian dollar has roared higher after the US dollar collapsed – now for super strong GDP today. The Australian dollar is back banging on the door of the 77 cent region it failed at on multiple occasions last month. It’s mostly about the US dollar’s fall with the Aussie matching moves in the Kiwi and the yen over the past 24 hours.
But there is a small amount of pre-GDP expectation I think. Unlike the high frequency indicators which are suggesting some slowdown in the economy in the past month, the GDP partials this week have all pointed to a stronger outturn for the data when it is released today. David Scutt has your preview here but the key for me is that Australia is likely to print a year on year growth rate above 3% again. AAA rated, 3% growth. No wonder the Aussie is back in favour.
3. Citi: Central banks are only helping the rich and “the damage caused to the system isn’t worth the benefit”. Yup. In the wake of Brexit, Donald Trump, the emergence of other populist political movements across the globe – Angela Merkel’s party was knocked into 3rd place in a state election over the weekend behind such a party – it’s hard to disagree that a large part of the population feel like they have been failed by central bank and government policies.
But for Citibank to come out and say it so clearly is a big step. Jim Edwards reports that the US Federal Reserve, the Bank of England and the ECB’s low-interest rate policies have increased economic inequality across the West, made the rich richer, and hurt pensions, according to Citi Research analyst Hans Lorenzen.
It’s an interesting note and one that’s on the money.
4. Here comes the return of stock market volatility – apparently. “I wouldn’t be surprised to see a correction take place again. It’s been a while … we’re probably due for a little bit of a pullback,” Jeff Kleintop, chief global investment strategist at Charles Schwab, told Business Insider’s Akin Oyedele.
“I think September and October could live up to their reputation for the return of volatility in the markets,” Kleintop said.
5. But Morgan Stanley is bullish stocks – maybe it’s upside vol we’ll be seeing. Risk and money managers usually worry about downside volatility – the type where they’ll lose money. But we also see topside volatility from time to time after long periods of consolidation like we have seen in the US stock market recently.
So it’s worth noting that the chief equity strategist for Morgan Stanley has been confused by the market this year, but he said there are now four definitive reasons the stock market is heading higher. That means he’s raised his 12-month price target for the S&P 500 to 2,300 from 2,200 and said that by the end of the economic cycle the market could be much higher than that.
6. Here’s the biggest signal yet that we might get an OPEC deal this month. Elena Holodny has an interesting look at just how tough things are for the oil producers at the moment.
Helima Croft, the global head of commodity strategy at RBC Capital Markets, wrote in a note to clients after the Saudi/Russia announcement Monday that “while short on details and immaterial for actual supply and demand balances, is another indicator of the extreme economic duress that producers are enduring, and in our view, increases the likelihood of some type of collective action if prices remain under significant pressure”.
Yep – they are pumping at record levels, and they need prices higher. Now it’s about the Saudis and Iran. Can they play in the same pool?
Key data for the past 24 hours (with thanks to BNZ markets)
AU: BoP current acct. bal. AUDb, Q2: -15.5 vs. -20.0 exp.
AU: RBA cash rate target, 6 Sept: 1.5 vs. 1.5 exp.
GE: Factory orders, m/m, %, Jul: 0.2 vs. 0.5 exp.
GE: Markit construction PMI, Aug: 51.6 vs. 51.6 prev.
EZ: GDP, q/q, %, Q2 F: 0.3 vs. 0.3 exp.
US: Labour market cond. index, chg Aug: -0.7 vs. 0.0 exp.
US: ISM non-man. composite, Aug: 51.4 vs. 54.9 exp.
NZ: GDT dairy auction, chg from prev. event, %: 7.7
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Good Guys; Good Buy?
Investors yesterday appeared to assume that JB Hi-Fi will cut a deal to buy The Good Guys. Clearly they like the prospect. JB Hi- Fi finished on its high and up 5.6% on the day. The stock is up a stellar 58% so far this year.
Investors are seemed happy to back JB Hi Fi management to do a deal that will be earnings per share accretive. Strategically a Good Guys acquisition should provide significant synergies. It will lift store numbers from around 200 to over 300 and be a significant boost to JB Hi- Fi’s presence in the more defensive and higher margin appliance retailing sector.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC