European markets have rebounded this morning despite another set of weak economic reports yesterday, this time from the services sector, which showed that the malaise being felt by the global manufacturing sector was now starting to bleed into the rest of the global economy.
The weakness would appear to show the possibility that Germany and the UK could already be tipping into a technical recession, while the US numbers showed the real possibility that US consumers may soon start cutting back as we head into Q4.
This weakness has seen the FTSE100 lose almost £100bn of value this week, though we may get a respite as we head into the weekend. A lot is likely depend on this afternoons US payrolls report, with the 7,000 level a really important level given that it also coincides with the February lows, and January highs.
Today’s US payrolls numbers could well be the last litmus test that tips the scales for another rate cut from the US Federal Reserve by the end of this month. Markets are starting to price back in the prospect of this happening, hence last night’s rebound in US markets.
Investors need to be cautious, however as the FOMC still remains remarkably split on the possibility of another rate cut, so the comments of the two dissenters to the last two rate cuts need to be scrutinised carefully in the coming days for any evidence of a shift in their thinking. Both Esther George of the Kansas City Fed and Eric Rosengren of the Boston Fed have dissented against the last two US rate cuts, so today’s speech by Rosengren later today should be monitored for any shift in tone given the weakness in recent data. His speech is scheduled for after today’s US payrolls report, where expectations for the headline number are the lowest they have been for over three years at 145k.
While a lot has been made of the weakness of this estimate it is still well above last month’s 130k print, and well above the lowest print this year which was 33k in February around the time of the US government shutdown.
This week’s ISM reports have both showed a much weaker employment component when delving into the internals of the report, with sharp falls in the new orders components as well. This doesn’t bode well for future payrolls reports, however the effect may well not be felt in the September numbers, but may well be much more visible when the October numbers come out.
While a disappointing report will add fuel to concerns about a slowdown in the US economy, the wages and unemployment numbers will also be closely scrutinised for any signs of stress in the labour market. Thus far we haven’t seen any with weekly jobless claims steady around the 210k level and wage growth has continued to remains solid at 3.2%. This isn’t expected to change, while the unemployment rate is expected to stay at 3.7%.
In what has been a big week for CEO departures, we got confirmation of yet another FTSE boss who is on his way out of the exit door. Do any of these people know something we don’t, are they pulling the ripcord while they can?
This morning’s news that BP CEO BP Bob Dudley is retiring wasn’t entirely unexpected as there had been reports circulating last weekend, that he could be on his way out. These reports turned out to be accurate as BP announced that the CEO of the upstream division Bernard Looney would be replacing him.
When Mr Dudley steps down at the end of March next year he can look back with some satisfaction at the job he has done in turning around a company, that some feared may not survive in the immediate aftermath of the Deepwater Horizon disaster of 2010. There was some hysterical calls from some in the US to take over the company and seize its assets, as huge amounts of oil lapped up on the Florida coastline. Fortunately more sensible voices prevailed, and as a result BP has been able to pay its reparations in respect of the disaster on a consistent basis over the last nine years and will likely continue to do so for some time to come.
In taking over from Tony Hayward in the aftermath of the Deepwater Horizon disaster Dudley has been instrumental in steering BP through some very difficult political waters selling assets and restructuring the company in order to meet its commitments for cleaning up and compensating victims of the disaster, as well as securing the company’s future in an era when the shift to renewables is gathering pace.
His legacy will be a smaller more nimble company, which even now still faces enormous challenges in not only cutting its future carbon foot print, but will need to adapt to a changing energy mix, and which to all intents and purposes still has uncomfortably high debt levels, after the recent acquisition of BHP Billiton’s shale assets.
US markets are set to open softer after yesterday’s sharp rebound off the technical support of the 200 day MA for both the S&P500 and Dow.
HP shares are likely to be in focus after announcing it would be cutting 16% of its global workforce overt the next three years.
Apple shares could also see a move on reports that they are looking to boost output of the iPhone 11 range by about 10%, along with global chipmakers like AMD, Intel and Infineon.
As far as IPO’s are concerned the bubble continues to hiss air at an alarming rate as both Uber and Lyft hit new record lows this week.
The US dollar has slipped back a little in the last 24 hours on rising expectations of another Fed rate cut, however before one gets too bearish on the US dollar, as far as the US economy is concerned it is still the best of a pretty ropey bunch so any downside could well be fairly limited.
The pound has held up well despite widespread scepticism that the UK governments new deal will amount to anything tangible, however while time still remains, hope springs eternal that a deal will emerge.