Yesterday saw a gauge of US manufacturing plunge by the most since the 2008 recession. This arrives just a day after Apple Inc cut its revenue targets citing a demand slowdown in China. The US manufacturing PMI fell to a 2 year low driven by a slump in new orders (weakest in 5 years) and a steep slide in production (worst since 2012). The combination of these two developments has fuelled speculation that Trump’s trade war with China may well be taking a bigger toll than first anticipated.
The market reaction has seen a weaker US dollar, significant drop in global stocks and a big demand for safe haven assets such as the Japanese yen and US government bonds. Putting things in perspective, the 10 year US government bond, which indicates the markets judgment of where rates are heading on a 10y horizon, has fallen from 3.25% in Q3 2018 to just above 2.5% as of yesterday’s close. This massive reduction is a huge signal that financial markets are worried about what lies ahead.
Today’s economic calendar is an interesting one. Focus will remain with the USA as non-farm payrolls crosses the wires at lunchtime. This report reflects December employment and may well be materially affected by the government shutdown which occurred just before Christmas and still sadly continues. Domestically, UK services PMI is released at 0930. This may have the status to move sterling but, with Brexit the key driver at present, it may have minimal impact. Have a great weekend.
Written by Viv Savani. 9:00am, January 4th 2019
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8:50am, December 7th 2018
Encouraging US data fails to inspire further gains in the greenback