The manufacturing disease may be spreading
Investors are still awaiting the global supply-side slowdown to show signs of seeping into household data as the manufacturing sector continues to contract. Yesterday, major European economies, except for France, showed contraction in the manufacturing sector for September while the US displayed the largest manufacturing decline since July 2009. This has been the ongoing trend this year, and while major central banks have eased monetary conditions, investors believe it is only a matter of time before the consumer feels the blunt force of the slowdown.
This afternoon, US ADP payrolls data will provide a preview to Friday’s Change in Non-Farm Payroll release, and expectations are for a near 25% reduction in jobs created from last month. A disappointing labour market may be the beginning of further household weakness which is likely to trigger concerns that an economic recession is close by. Given Tuesday’s worse-than-expected US manufacturing data, this week’s labour market stats will be of greater concern than previous releases.
Bottom line: Markets are already expecting the Federal Reserve to cut interest rates 40 basis points by mid-2020, but if the economic data indicates consumer weakness, greater stimulus will be expected. The bigger worry is perhaps how much support – both monetary and fiscal - policymakers can effectively provide the global economy.
Yesterday, Sterling extended its recent losses against the Greenback, trading at the lowest level since early September as markets remain uncertain about Britain crashing out of the EU on October 31st. The pair temporarily broke through the 50-day moving average, reaffirming the bearish near-term outlook.
For much of yesterday afternoon, it was one-way traffic as the Euro strengthened against the Pound. This is a continuation of the downward trend we’ve seen emerge since September 20th where the pair has lost over 1.5% as it heads back towards crossing the 100-day moving average. With little data from either region, Brexit news could dominate price action in today’s session.
The Bloomberg Dollar Index retreated from two-year highs as the US ISM Manufacturing PMI registered its lowest reading since mid-2009. The recovery for the pair was consolidated as markets look towards another potential interest-rate cut from the Federal Reserve this month.
All content is written by the Global Reach Trading Desk. The opinions expressed are not the view of Global Reach Group and are not intended as investment advice.