Tuesday, December 3, 2019

US manufacturing sector unexpectedly slumps in November; will the US labour market disappoint as well?

  • China
  • Dollar
  • Gold
  • Yen
  • AUD

Market recap: US equities fall on surprise US tariffs on Brazilian and Argentinian imports

US equities fell thanks to weak data from the US manufacturing sector. Institute for Supply Management (ISM) manufacturing Purchasing Managers' Index (PMI) data largely surprised investors on Monday after the report showed that the manufacturing sector's PMI contracted to 48.1 in November, from 48.3 in October and worse than the expected level of 49.2 that economists expected. The stock market was then pushed down further by US President Donald Trump announcing tariffs on US steel and aluminium imports from Brazil and Argentina, surprising officials from the two countries and investors. The DJIA tumbled 0.96%, the S&P500 fell 0.86% and the Nasdaq sank 1.12% as a result. The dollar fell against major currencies as a result of growth worries for the US economy. The Dollar Index fell 0.42% on Monday, to 97.86.

Meanwhile, safe haven assets were mixed despite growth worries and the surprise tariffs on . The yen strengthened against the dollar by 0.47%. But gold fell 0.11% and US Treasuries were mixed on Monday. Two-year yields fell 1bps to 1.60% and 10-year yields gained 4bps to 1.82%.

Major indices in Asia looks set to track US losses, as the Nikkei, Hang Seng Index and Straits Times Index all started Tuesday's trading session 1.27%, 0.49% and 0.41% lower.

The Reserve Bank of Australia (RBA) kept rates unchanged for December as expected during today’s monetary policy decision. But the Aussie jumped after the central bank signalled that it is not in a hurry to use the remaining of its 50bps rate cut. AUD/USD jumped 0.32% to 0.6841 as of 8.14am (GMT +4).

Today’s Analysis: US private sector payrolls likely to grow, although it may not be able to beat expectations

Market watchers will be closely looking at labour market data in the US private sector on Wednesday. The Automatic Data Processing (ADP) Employment Change dataset for November will be released at 5.15pm (GMT +4) tomorrow. Another point of focus will be ISM's non-manufacturing PMI report, which economists expect to fall slightly from 54.7 in October to 54.5 for November that’s set to be released at 7pm (GMT +4). Economists expect jobs in the US private sector to grow by 140,000 in November, an increase from October's 125,000 payroll growth. But Monday's ISM manufacturing PMI report may be a signal that employment data for November could possibly disappoint as well.

ISM's report indicates that November's employment has slowed in the manufacturing sector and is contracting faster than October's employment in the sector. Despite the end of General Motors'(GM) strike at the end of October, a higher likelihood for a partial trade deal between the US and China, and better-than-expected durable goods orders in October, new orders in the manufacturing sector continued to slump.

ISM’s manufacturing PMI report shows that employment and new orders continues to slump in the manufacturing sector


Series Index (Nov)

Series Index (Oct)

Percentage Point Change


Trend (Months)







New orders


















*Source: ISM

But the manufacturing PMI report by Markit conflicted the ISM report, posting a better-than-expected manufacturing PMI for November and reaching a seven-month high. According to Markit, employment in the sector increased the fastest since March. Since ISM's report is mostly skewed to larger firms while Markit's report includes both smaller and larger firms, it is likely that there will be growth in the number of payrolls in the US' private sector. But it is possible that ADP's employment data will slightly disappoint investors.

ADP Employment Change expected to rise in November

*Source: ADSS, Bloomberg

If ADP employment data miss expectations and comes in below 140,000, then expect the dollar to continue to slump against major currencies. The Dollar Index is likely to fall towards 97.75 as a result. If ADP employment data meets expectations, then expect the Dollar Index to continue to range in the 97.75 and 98.00 range. But if ADP's report beats expectations, then the dollar should recover and the Dollar Index will likely rise to range between 98.00 and 98.19.



Effect on Dollar Index


ADP Employment data beats expectations

Rises to range between 98.00 and 98.19


ADP Employment data meets expectations

Remains little changed, continue to range between 97.75 and 98.00


ADP Employment data miss expectations

Falls towards 97.75

*Source: ADSS

ISM's non-manufacturing PMI data is likely to affect the dollar as well if it largely surprises investors. If the greenback falls on worse-than-expected employment growth in the US’ private sector, a disappointing non-manufacturing PMI level is likely to accelerate the dollar’s fall. The Dollar Index will likely fall to 97.46’s level.