The US Stock market is getting pulled down by after on the U.S. manufacturing sector report that it slowed for the fourth straight month, with the ISM (Institute for Supply Management) purchasing manager’s index unexpectedly falling to 48.1% in November from 48.3% in October. Economists expected a reading of 49.2%. Readings below 50% reflect business conditions worsening.
Respondents to the ISM Survey Said –
- “Business level is similar to October.” (Computer & Electronic Products)
- “Chemical industry has been slow globally, but the curve seems to be flattening.” (Chemical Products)
- “Economic uncertainty continues. Our outlook on future business is cautious, yet positive.” (Transportation Equipment)
- “Economy is holding up. Business is staying constant. The same challenges persist — foreign exchange, trade uncertainty and trend changes [for example, sugar reduction].” (Food, Beverage & Tobacco Products)
- “Slowdown in business has us revising our 2020-21 capital spend.” (Petroleum & Coal Products)
- “The order book continues to shrink below our forecast levels. We’re unsure at this point how much of the slowdown is tied to certain events [like the General Motors strike], year-end inventory reductions by customers, or a worsening economy. We don’t expect clarity on this until early 2020, when we expect to either see restocking orders [a good sign] or not [a bad sign].” (Fabricated Metal Products)
- “Demand has stabilized for the last half of [the fourth quarter], and production will be stable for the rest of this year.” (Machinery)
- “Heading into the holiday season, we are seeing the backlog decrease as new orders for 2020 seem lighter than in past years.” (Plastics & Rubber Products)
- “Markets have downshifted further. The continued confusion surrounding China trade has kept export markets on edge. Profits are elusive. Cash-flow planning is paramount. The general economy is slowing down.” (Wood Products)
- “Incoming orders and production have ticked back up. Tariffs are still a question.” (Furniture & Related Products)
American investors are focused on relations between the United States and China. Today, it became known about Beijing’s response to Donald Trump signing bills supporting protesters in Hong Kong. The Chinese authorities will prohibit American warships and aircraft from visiting this administrative region. Restrictive measures have also been taken against a number of US non-governmental organizations, including Human Rights Watch and Freedom House, for supporting extremism, violent and criminal acts. Negotiations on the initial trade deal continue, despite political aggravation. Yesterday, the Chinese media reported that representatives of the PRC continue to insist that, within the deal, the US should cancel existing tariffs on Chinese exports and not those that are scheduled for December. However, the American side has not yet agreed to this. Today, President Donald Trump threatened to open a new trade war front and introduce duties on metal imports from Brazil and Argentina, because, in his opinion, the governments of these countries deliberately devalue their national currencies.
Today, oil prices are trying to grow after a significant decline on Friday. The strengthening of oil quotes is supported by an increase in business activity in the manufacturing sector of the PRC, as well as rumors that countries participating in the OPEC+ agreement may agree on a new reduction in oil production. During the next meeting of OPEC countries and their allies, another decrease by 400K barrels of production may be approved.
EUR is weakening today against its main competitors – JPY, GBP, and USD. Published November EU and German Manufacturing PMI were positive. For Germany, the figure rose from 43.8 to 44.1 points, and for the EU – from 46.6 to 46.9 points. However, EUR is under pressure as investors fear the collapse of the ruling political coalition of the CDU/CSU and the SPD in Germany. The newly elected leadership of the Social Democratic Party is likely to insist on increasing government spending, which the CDU/CSU is actively opposing. The collapse of the ruling coalition could lead to a new political crisis and adversely affect the German economy.
During the day, investors are also waiting for the speech of the new head of the ECB Christine Lagarde in front of the European Parliament. She is expected to answer questions about the poor growth of the European economy, the ECB stimulus program and its plans to combat climate threats.
GBP today is strengthening against EUR and has ambiguous dynamics against USD and JPY. Today’s November UK Manufacturing PMI was negative. The indicator decreased from 49.6 to 48.9 points. The accompanying statement indicated that the decline in production was due to the reaction of the companies to the delay of Brexit. Many firms have already run out of financial reserves that were accumulated before October of this year in the hope of a particular option for Britain to exit the EU. Instead, the Brexit date was rescheduled again. Industrial companies are now starting a new job cut in order to reduce costs.
JPY is strengthening against EUR and has ambiguous dynamics against GBP and USD. Today’s November Japanese Manufacturing PMI was positive. The indicator rose from 48.4 to 48.9 points but remained in the stagnation zone. Japanese industry is still under pressure due to a significant reduction in new orders, as well as poor exports, especially from China.
AUD today is strengthening against its main competitors – EUR, JPY, USD, and GBP. AUD is supported by strong data from China. For November, Chinese Manufacturing PMI, instead of the expected decline, rose from 51.7 to 51.8 points, which is the most significant level over the past three years. Chinese companies reported significant growth during the last month in both production volumes and new activities, including an increase in foreign orders. The number of employees remained stable, and no major cuts were made. These data suggest a relaxation of pressure from the US trade war on the Chinese industry. The Australian report on building permits published today turned out to be poor and fell by 8.1% in October. However, these data did not exert pressure on AUD, as investors are encouraged by Chinese statistics.
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