A clutch of negative factors continue to drive the trends of recent market moves. The US/China trade dispute continues to tread down a path of deterioration as the two sides implement tariffs and struggle to agree on a potential meeting. The economic resulting malaise is shown bare through continued worsening manufacturing PMIs. Furthermore, the worsening political outlook for the UK’s exit from the European Union is beginning to gather pace. The UK Parliament returns from its summer recess today and this means that the race to thwart Boris Johnson’s plans to keep a “no deal” Brexit in play will begin in earnest. It appears that any push to legislate for preventing a “no deal” Brexit will be swiftly countered by Johnson pushing for an October General Election (Monday 14th October has been suggested). Brexit developments could now move at a pace this week. The market reaction for all of this is for yuan weakness, euro weakness and sterling weakness. The flip side involves the benefit of safer haven assets, with demand for government bonds high, gold supported, along with the Japanese yen but also an increasingly outperforming the US dollar. There is one glint of light this morning, from Australia. The Reserve Bank of Australia held rates steady at +1.00% (no change expected at +1.00%). After successive 25 basis points rate cuts in June and July, the RBA has held fire and “will continue to monitor developments” in an attempt to counter sluggish wages and slowing economic growth. However, the RBA perhaps did not sounds as cautious as the market had expected, and this is helping the performance of the Aussie dollar this morning.
Wall Street was mixed into the close on Friday with the S&P 500 +0.1% at 2926, but with US futures falling away early today by -0.4% the pressure is on a correction. Perhaps surprisingly, Asian markets have held up well with the Nikkei and Shanghai Composite both all but flat. European markets are also mixed in early moves although it is interesting to see the negative correlation of sterling and FTSE 100 playing out as FTSE futures +0.3%. In forex trading we see JPY and USD performing well, along with the AUD, whilst GBP is facing mounting selling pressure. In commodities, gold is slipping on the stronger dollar, whilst oil is also dropping back slightly.
With yesterday being Labor Day in the US, the big focus on the economic calendar is ISM Manufacturing. First up though is the UK Construction PMI at 0930BST. The construction industry accounts for around 7% of the UK economy, but has been on its knees in recent months. Consensus expects the Construction PMI to improve marginally to a still very weak 45.9 (from 45.3 in July). Then attention turns to the US ISM Manufacturing which is at 1500BST and is expected to tick the slightest amount lower to 51.1 in August (down from 51.2 in July).