Thursday, October 3, 2019

Equities slide for a second day in a row; will the dollar continue to weaken?

  • Dollar
  • Gold
  • Yen
  • Euro
  • Pound

Market recap: A tough day for traders thanks to poor US labour market data

The Automatic Data Processing’s (ADP) Employment Change figures fell short of market expectations on Wednesday, recording only 135,000 for September. Global equities plummeted as a result and the disappointing employment data once again highlighted the negative impact the US China trade war has had on the US economy. Markets were further rattled by the World Trade Organization’s (WTO) decision to grant the US permission to tax US$7.5bn-worth of EU imports, a conclusion to the 15-year dispute between the US and EU over the EU’s illegal subsidies to aircraft maker Airbus. Equities in the US fell sharply - the DJIA tumbled 1.86%, the S&P 500 descended 1.79% and the Nasdaq lost 1.56%. The Dollar Index fell 0.11% as the dollar continued to weaken across major currencies.

Investor fears caused safe havens to surge, with gold advancing 1.37% and closing just shy of 1500 on Wednesday. The yen continued to strengthen against the dollar for the second time this week, rising 0.53%. Meanwhile, US Treasuries yields fell, with two-year yields weakening 7bps to 1.48% and 10-year yields slipping to 1.60%.

In the UK and Europe, equity markets suffered because of poor US economic data and the WTO’s announcement regarding the Airbus dispute. The FTSE 100 plummeted 3.23%, while the Euro Stoxx 50 Index sank 2.98%.

Asia markets opened lower for the second day in a row, with the Nikkei, HIS and STI opening 1.64%, 0.81% and 0.88% lower respectively.

Today’s analysis: All eyes on ISM Non-Manufacturing PMI data

The Institute for Supply Management’s (ISM) Non-Manufacturing Purchasing Managers’ Index (PMI) will be released later today at 6pm (GMT +4). Analysts expect the data to see a reduction from 56.4 in August to 55.1 for September.

Important economic data releases

ISM Manufacturing PMI released on Tuesday showed a bigger slump than expected in the US manufacturing sector. Global indices fell across the board and were pulled down even further by employment data on Wednesday. The dollar weakened across major currencies, with the Dollar Index falling 0.25% on Tuesday and 0.11% on Wednesday.

August’s Non-Manufacturing PMI data is probably inflated because of Amazon’s record-breaking Prime Day in July, so will likely reduce in September. If Non-Manufacturing PMI disappoints the market, the dollar will likely continue to weaken against major currencies. But we don’t think it will cause as much concern as Tuesday’s ISM Manufacturing PMI.

As a result, the Dollar Index may descend to 98.86’s levels (a downside potential of 1.8%) on closing today and if Non-Manufacturing PMI disappoints, we could potentially see Fed-tracking futures predicting an 80% chance of a higher of a rate cut in October.

Dollar index likely to fall on disappointing Non-Manufacturing PMI