Economic Data Review (October 1-4, 2019)
It’s been a week of disappointed expectations for the global economy as recession fears continue to mount. With the exception of two manufacturing purchasing manager reports, one from China (the Caixin) and another from Great Britain, most of the high profile economic indicators released this week have failed to meet their forecasts.
With such a climate of uncertainty, all eyes are firmly fixed on the US for any signs of economic conditions deteriorating. If this is the case, we could be witnessing the end of one of the longest bull market runs in recorded history.
Tuesday’s discouraging ISM Manufacturing readings from the US are particularly weighing on investor sentiment. The figure came in at 47.8, the lowest it’s been in over ten years, causing both the S&P 500 and the Dow to drop by over 1.7%, their largest such drop since August.
This was followed on Wednesday by labor market woes as ADP Non-farm employment change came in at 135k, (forecasted 140k), down from 157k in early September, which itself was revised down from an initial reading of 195k last month. Both the S&P and the Dow gapped down on open and spent the day mirroring the losses incurred on Tuesday.
Gold & the VIX
The VIX surged by 30% on Tuesday and Wednesday alone, testifying to an uptick in market volatility and hitting levels last seen at the end of August as it eyes up highs last seen on Aug 4th.
Gold also rallied this week, finding daily support at $1460 and retesting the $1500 level as markets begin to price in the probability of further Federal Reserve rate cuts. These fears, no-doubt, are given further credence by the above slew of disappointing economic data.
Meanwhile, at 3.1 million barrels, US crude oil inventories came in 1.1 million barrels higher than expected by the market, pointing to a general slowdown in demand. The price of West Texas Intermediate plunged to lows of $52.17, levels last seen at the beginning of August. Since September 17 alone, crude has dropped by almost 15%.
What’s in store?
So, expectations that the Fed will ease further, lackluster economic data, a stock market rejecting from all-time highs, increased volatility, oil inventories on the rise and gold back above $1500. It’s beginning to look like an interesting and turbulent Q4 is in the works. For the history buffs out there, October was also a terrible month for US stock markets in 1929, 1987 and, you guessed it, 2008.
Markets will be closely monitoring today’s US Non-Manufacturing PMI for anything below the forecasted 55.1. A reading below 50 is likely to hasten further stock market sell-offs as the case for recession looms large.
Friday’s Non-Farm Payroll report closes the week as far as high-impact economic data is concerned. The market is broadly expecting a 140k increase, this could be a case of an eleventh hour reprieve or an end of week sell-off.
Finally, we cap things off with Chair Powell’s address, which will be dissected for any evidence of not only further interest rate cuts, but their size and a possible return to QE. Also, expect him to field further questions about the recent turmoil in repo markets.
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