After a rollercoaster August, investors will no doubt be hoping that September will be much less turbulent than it has been in recent weeks.
Concerns about Chinese growth as well as the prospect of a US rate rise
have seen European markets come off their worst monthly performance since 2011, though that does have to be tempered somewhat by last week’s strong rebound, as China cut rates further while senior Fed official and New York Fed President Bob Dudley suggested a September rate rise was now “less compelling” than previously thought.
Even the Atlanta Fed’s Dennis Lockhart softened his earlier rhetoric
about a September rate rise hinting he may be having second thoughts given recent market volatility.
This softer tone from Fed officials was undone somewhat over the weekend at Jackson Hole by Deputy Fed Chairman Stanley Fischer in rather more hawkish comments
that suggested that the Fed wants to start hiking as soon as possible as they believe there is “good reason” to suggest that inflation will start to rise towards its 2% target, and it doesn’t want to be behind the curve when it does.
With crude oil prices enjoying a rebound of over 25% in the past few days,
partly on short covering due to concerned noises from OPEC, but also on a surprise fall in US production levels, there could be a case for suggesting that crude oil prices may have hit a short term base, which might also suggest that inflationary pressures could well start to return as well
This conflicting narrative may well suit the Fed’s purpose in keeping the market on its toes but it does nothing in helping to curtail market volatility with both US and European markets both closing lower yesterday, as concerns about a possible Fed rate rise
in September returned, in a big week for US data, with the latest payrolls data, Fed Beige Book and all round health check on the US economy.
With Chinese authorities also making it plain that they are more interested in arresting and scapegoating individuals for “undermining market confidence”
than taking measures to support the stock market Chinese markets have continued their wild gyrations over concerns about the extent of the slowdown being experienced by the Chinese economy.
While these measures may suit the narrative of the Chinese government
in helping mask some of the problems in the Chinese economy they do nothing for investor confidence, and in particular in improving investment confidence within China itself.
This morning’s final Caixin manufacturing and services PMI numbers for August
served to reinforce concerns about the Chinese economy and the manufacturing sector in particular, and the prospects of further easing measures further down the line. The 77 month low seen just over a week ago of 47.1 was one of the catalysts of the recent rout and the latest reading of 47.3 doesn’t alter investor concerns about the difficulties Chinese manufacturing finds itself in. The services number also showed a decline to 51.7 from 53.8.
The official Chinese numbers came in a little better,
but then again they always do.
This morning’s European data is expected to continue to point to divergence
between the German and Spain economies as the outperformers and the French and Italian economies as the laggards.
The final France manufacturing PMI for August is expected to contract at 48.6
, while Italian unemployment is expected to remain at record high levels of 12.7%, though its manufacturing sector is starting to show signs of improved expansion at 55.5.
German and Spanish manufacturing PMI are expected to improve to 53.2 and 53.9 respectively.
The UK manufacturing sector has been showing signs of weakness in Q3,
despite last week’s final Q2 GDP numbers showing a sharp rise in business investment. North Sea oil has been showing an improvement in recent months and the hope is that after a slow start to Q3 we could see a pickup in August manufacturing PMI from July’s 51.9 to 52.0.
The US oil and gas sector has been a significant drag on US manufacturing
in recent months with the ISM underperforming, though it has still managed to remain consistently above 50, despite some weak regional data from areas like New York, Philadelphia and Chicago in recent months.
– the euro continues to remain under pressure after peaking at 1.1700 last week. Having slipped back below the 200 day MA there is a risk we could fall further towards 1.1100 where the 50 and 100 day MA intersect The bias remains for a return towards the 1.1400 area while above 1.1080 level
– a truly dreadful week for sterling which continues to remain surprisingly weak with support at 1.5330 and the July lows. A move through here could well see further losses towards the June lows at 1.5170. We need a move back through the 1.5480 level to stabilise and suggest a return to 1.5600.
– last week’s failure to overcome the 200 day MA at 0.7360 suggests we could well slide back towards the 0.7230 level, and even back to the 0.7130 area. A close above the 0.7360 level suggests a move to the next resistance which sits at the May highs at 0.7485.
– last week’s failure to stay below the 120.00 level suggests the possibility of a return to the 123.00 level. Only a move back below the 120.00 area suggests a return to the 119.00 area initially and last week’s low at 116.20.
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