With much of September dominated by geopolitical events, the macroeconomic data came into the spotlight last week. Tuesday saw the US Institute of Supply Management (ISM) Manufacturing Purchasing Managers’ Index come in at 47.8% for September, its lowest reading since 2009. Then Thursday saw the September ISM Non-Manufacturing Index expectation of 55.3, but coming in at 52.6, appreciably down from 56.4 in August. Yes, this still indicates service sector expansion, but it also highlights that weakness in manufacturing is pushing into the broader US economy.
These data points saw riskier assets plunging lower last week, with stock indices in the US and globally under significant negative forces. Additionally, the poor US data intensified market expectancy for another cut in interest rates from the US Fed into year-end, sending US Dollar weaker across global currencies.
Sandwiched by these data points, Wednesday saw the ruling by the World Trade Organization (WTO) that the US would be able to impose tariffs of as much as $7.5 billion on European exports. This is the largest award in WTO history and is in retaliation for illegal European government aid to Airbus. The prospect is now for an escalation in tariffs between the EU and US.
The US Employment report for September was released Friday, with the Unemployment rate falling to its lowest level since 1969 at 3.5%, and although the Non-Farm Payroll data point was below projections, previous data were revised higher. Wage growth, however, remains low. This mixed report echoes a still vibrant labour market without any notable tightness and inflationary pressures. Nevertheless, in the wake of the aforementioned, very disappointing ISM data through midweek, the Employment report was viewed by markets as overall positive, with share averages in the US and globally correcting some of the losses from earlier in the week into the weekend.
The key geopolitical development for early October was the advancing enquiry into the possible impeachment of US President Trump, in relation to the phone conversation between the Ukrainian President and US President. This unfolding enquiry will continue in the US political limelight for coming weeks and likely months. US and global financial markets will watch with interest.
Practically no developments in the US-China trade war to begin October with the talks due to resume this week. We watch with keen interest.
Turning to the UK, Boris Johnston unveiled the UK’s government’s updated Brexit proposal with a new “solution” to the of the Irish border issue. This has, however, been met without any real positives from the EC and appears to be dead in the water already.
What to Watch
Looking at the macroeconomic data this week the focus will be on Thursday’s US and German CPI, with Michigan Consumer Sentiment Friday. The geopolitical attention will be on the reopening of US-Sino trade negotiations, plus any further progress in the US impeachment enquiry. Turning to Central Banks, Jerome Powell, Fed Chair will speak Monday, Tuesday and Wednesday with the release of the FOMC Minutes on Wednesday.
|7th October||German Factory Orders; Fed Powell speaks|
|8th October||Chinese Services PMI; German Industrial Production; US PPI; Fed Powell speaks|
|9th October||Fed Powell speaks; FOMC Minutes|
|10th October||UK Manufacturing and Industrial Production; US CPI|
|11th October||German CPI; Canadian Employment report; Michigan Consumer Sentiment|