October 4, 2019
Asia’s shares show weakness ahead of US employment report
Asian equities remained relatively weak on Friday, October 4, as investors await the release of September’s Non-Farm Payrolls data.
Hong Kong’s Hang Seng index dropped 0.54% amid reports that the city government is willing to discuss a possible emergency regulation to ban masks worn by protesters. The besieged city has been shaken during weeks of protests that have degenerated into violence.
In Japan, the Nikkei 225 recovered from its previous downfall. In South Korea, the Kospi rose slightly as the shares of Samsung Electronics and chip maker SK Hynix each increased by at least 1%.
Australia’s S&P/ASX 200 was up 0.42%, with the shares of biotech company CSL up 2.97%. Australian retail sales in August were lower than expected, but higher than the previous month.
The ISM nonmanufacturing index, which is a key measure of the services sector, was below expectations on Thursday. This followed the poor ISM manufacturing index, which shows that the sector is in contraction. While the latest economic data reflects a downtrend, it is possible that eventually the economy will not go into recession if the Fed reacts in time.
The Fed is scheduled to meet later this month. Last month, the central bank cut rates for the second time in 2019. For now, the bad news is good because with it further rate cuts are expected.
Market views on whether the Fed needs to cut interest rates are divided. The dollar won’t fall sharply as not everyone thinks the Fed will cut interest rates this month.
The dollar declined after a U.S. services sector survey raised concerns about the pressure of U.S. trade disputes with China and other countries. Against the Yen, the Dollar weakened.
The euro, which had been negatively influenced by concerns that Germany might fall into recession, rose and broadened its recovery.
The British pound has risen to its weekly high against to the dollar. Traders remain unsure whether Johnson’s proposal on the Irish border can be transformed into a final divorce settlement, given contradictory messages from both sides.
Oil futures rose during Friday’s Asian session, but are on their way to a big weekly loss for fear that slower global economic growth will hurt fuel demand. Saudi Arabia has announced that it has already fully restored oil production after the recent attacks.
The weakness of the U.S. services sector and data on employment growth add to concerns about a prolonged trade war. As a result, concerns about global oil demand continue to grow.
Gold rose during Asian trading hours for the fourth consecutive session. It does so as U.S. economic data fueled fears of slow growth and investors wait to see if employment data consolidates the Federal Reserve’s expectation of interest rate cuts. Weaker than expected Non-Farm Payroll data will support gold and the momentum is likely to be quite strong.
European markets are expected to open Friday’s trading session higher.
Technology stocks led the way
U.S. indices rise recovering from sharp decline.
U.S. equities rose on Thursday, October 3, recovering some of the losses after a sharp two-day decline. They do so amid rising expectations that the Federal Reserve will cut interest rates later this month.
Technology stocks led the way. Facebook rose 2.7%, while Alphabet and Amazon gained 1% and 0.7% respectively. Apple closed with a rise of 0.9%.
The S&P 500 has fallen 1.7% so far this week, while the Dow has lost 2.3%. The Nasdaq is headed for a 0.9% weekly decline. However, this could change on Friday, after the US government releases the latest monthly employment report.
Wall Street began Thursday’s session amid an active start to the quarter. The Dow lost more than 800 points in the first two sessions of the quarter after ISM released its weakest manufacturing reading in more than 10 years, triggering concerns of an economic downturn. However, the Fed is scheduled to meet later this month.
Last month, the central bank cut rates for the second time in 2019. For now, the bad news is good because with it further rate cuts are expected.
Optimism has suddenly vanished
After a timid initial rebound attempt on Thursday, October 3, another bad macro data in the U.S., in this case the ISM service sector, rekindles the doubts of investors who do not find arguments for purchases.
The last quarter of the year began with a bullish sign. But optimism has suddenly vanished. Tuesday’s downturns from the worst U.S. manufacturing activity in more than a decade gave way on Thursday to a full sales gale. The setback came to exceed 3% in Europe.
On the eve of the resumption of trade negotiations between the United States and China, markets have been shaken by the possibility that the United States will also impose tariffs of up to 7.5 billion dollars on Europe in retaliation for subsidies to Airbus.
The threat of tariffs to Europe further clouds already weak economic forecasts and reinforces fears of a recession. In addition, the possible motion of censure on Donald Trump and, above all, the countdown on Brexit clouds the forecasts.
After the ultimatum launched by Boris Johnson, Juncker opens up to negotiate his plan for Brexit, but sees some problematic points.
UK urges European Union to be flexible and creative
British Brexit Minister Stephen Barclay has defended Boris Johnson’s proposals for exit from the European Union.
At the same time he called on the EU to negotiate with the London Executive.
According to Barclay, it is now up to the European Union to respond and demonstrate whether it can be flexible. The British are now ready to negotiate the details with Brussels.
Britain has put forward serious proposals and clearly needs to have a negotiation to move forward.
The British minister recalled that, for there to be an extension of Brexit that possibility would have to have the backing of all 27 EU members.
Eurozone private sector close to stagnation
The private sector economy in the euro area fell in September to close to stagnation.
Weakness remained centred on the manufacturing sector and the latest data showing that the industrial sector experienced the largest drop in output in almost seven years.
In contrast, the services sector saw a further increase in activity, according to the PMI index released on Thursday.
By country, in Germany the data was in contraction territory, for the first time since April 2013. It was the only country to record a drop in activity compared to August.
However, growth was relatively weak in the rest of the countries surveyed. Italy and France recorded only slight increases in total economic activity, while growth weakened in both Ireland and Spain.
Exports have declined over the last twelve months and the September decline was the strongest since composite export data were first published just over five years ago.
Although total activity levels have changed little, and new orders have fallen, employment growth continued in September.
World Trade Organization authorizes sanctions against Europe
The WTO authorizes the United States to impose tariffs on Europe of $7.5 billion, in compensation for the illegal subsidies that, for years, have been received by the aircraft manufacturer Airbus.
The World Trade Organisation is taking a stand in a long-running dispute that has been going on for 15 years and whose decision adds new uncertainties to the trade war that has been destabilising markets for months.
The European Union has already given assurances that it will act accordingly.
The WTO also ruled at the end of March that the subsidies to Boeing are contrary to international law and will decide at the beginning of next year on the tariffs that Brussels intends to impose in compensation, which will be about 10,000 million dollars.
The US has announced that it will start applying tariffs from 18 October, although on 14 October it will meet with EU negotiators. The levies will be 10% for airplanes and 25% for agricultural products among others.
U.S. private payrolls
The September private payroll report shows that the pace of recruitment is slowing.
The private sector created more jobs than expected in September, but the pace slowed amid growing signs that the labour market is deteriorating, according to a report released Wednesday by ADP.
Companies hired 135,000 workers in September, slightly more than expected. It’s a drop from 157,000 in August.
Due to the fragile economic situation, the situation is becoming critical and what happens in the coming weeks and months will determine whether there is an economic recession in 2020.
Companies with fewer than 50 employees were the slowest to win in hiring, with only 30,000 employees. Large companies, with at least 500 workers, created 67,000 new jobs. Medium-sized companies added 39,000.
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