US Opening Call from Alpari UK on 3 November 2014
Growth concerns resurface after disappointing PMI readings
• Global growth concerns resurface after disappointing PMI readings;
• Chinese PMI readings linger on the right side of 50, for now;
• Eurozone PMI readings disappoint, although there are some bright spots;
• US PMI readings and Fed speeches in focus on Monday.
US futures are pointing to a weaker start of Monday, after closing at record highs last week, as a raft of disappointing PMI readings from the eurozone and Asia weigh on investor sentiment.
Global growth concerns are going to be a recurring theme in the coming months, although clearly it’s not so much so that it stops US indices hitting those record levels. I don’t think we would be seeing this rally if it wasn’t for the efforts of the European Central Bank and the Bank of Japan to stimulate their economies. What we’re experiencing right now is exactly what we saw when the Federal Reserve and the Bank of England were significantly increasing their balance sheets.
The moves by the ECB and the BoJ have almost completely masked the fact that the Fed and BoE have stopped increasing their balance sheets and are headed in the other direction, meaning they don’t have to worry too much about the impact on the financial markets. That burden has now been passed to the ECB and BoJ to deal with further down the road.
Global growth concerns are very much still there though and we’re seeing no signs that this is going to change. Over the weekend, the Chinese manufacturing PMI fell to 50.8, reflecting another decline in confidence in its most important sector. While the HSBC reading this morning actually displayed a small improvement in October, with the number rising to 50.4, there is one thing they both have in common, they both are marginally above the 50 level that separates growth from contraction.
That is a worrying position given that the trend since the summer has been to the downside. Should both of these fall into contraction territory, it would be very concerning for the country and anything that’s concerning for China, is a concern for everyone. The only upside is that there is still plenty of room for more targeted stimulus from the People’s Bank of China, but I think this is really clutching at straws. China is facing a slowdown in the coming years and managing it is going to be very difficult. Targeted monetary stimulus is only going to mask the problem for so long and could create bigger issues further down the road.
The data from the eurozone hasn’t been any more encouraging, with both the German and eurozone manufacturing PMIs being revised lower. Both still represent an improvement on the month which shouldn’t be overlooked, neither should the fact that the French reading was revised higher and the Spanish release beat expectations, but as a whole it doesn’t give me much to be optimistic about.
The focus will remain on PMI numbers as we head into the US session, with both the Markit and ISM readings being released. These are expected to be very much in line with all of the other data we’ve had from the US recently, which points to an economic recovery that is going from strength to strength. We’ll also hear from some members of the Fed, which as always, could heavily impact the markets.
The S&P is expected to open 1 point lower, the Dow 20 points lower and the Nasdaq 3 points lower.
Growth concerns resurface after disappointing PMI readings
• Global growth concerns resurface after disappointing PMI readings;
• Chinese PMI readings linger on the right side of 50, for now;
• Eurozone PMI readings disappoint, although there are some bright spots;
• US PMI readings and Fed speeches in focus on Monday.
US futures are pointing to a weaker start of Monday, after closing at record highs last week, as a raft of disappointing PMI readings from the eurozone and Asia weigh on investor sentiment.
Global growth concerns are going to be a recurring theme in the coming months, although clearly it’s not so much so that it stops US indices hitting those record levels. I don’t think we would be seeing this rally if it wasn’t for the efforts of the European Central Bank and the Bank of Japan to stimulate their economies. What we’re experiencing right now is exactly what we saw when the Federal Reserve and the Bank of England were significantly increasing their balance sheets.
The moves by the ECB and the BoJ have almost completely masked the fact that the Fed and BoE have stopped increasing their balance sheets and are headed in the other direction, meaning they don’t have to worry too much about the impact on the financial markets. That burden has now been passed to the ECB and BoJ to deal with further down the road.
Global growth concerns are very much still there though and we’re seeing no signs that this is going to change. Over the weekend, the Chinese manufacturing PMI fell to 50.8, reflecting another decline in confidence in its most important sector. While the HSBC reading this morning actually displayed a small improvement in October, with the number rising to 50.4, there is one thing they both have in common, they both are marginally above the 50 level that separates growth from contraction.
That is a worrying position given that the trend since the summer has been to the downside. Should both of these fall into contraction territory, it would be very concerning for the country and anything that’s concerning for China, is a concern for everyone. The only upside is that there is still plenty of room for more targeted stimulus from the People’s Bank of China, but I think this is really clutching at straws. China is facing a slowdown in the coming years and managing it is going to be very difficult. Targeted monetary stimulus is only going to mask the problem for so long and could create bigger issues further down the road.
The data from the eurozone hasn’t been any more encouraging, with both the German and eurozone manufacturing PMIs being revised lower. Both still represent an improvement on the month which shouldn’t be overlooked, neither should the fact that the French reading was revised higher and the Spanish release beat expectations, but as a whole it doesn’t give me much to be optimistic about.
The focus will remain on PMI numbers as we head into the US session, with both the Markit and ISM readings being released. These are expected to be very much in line with all of the other data we’ve had from the US recently, which points to an economic recovery that is going from strength to strength. We’ll also hear from some members of the Fed, which as always, could heavily impact the markets.
The S&P is expected to open 1 point lower, the Dow 20 points lower and the Nasdaq 3 points lower.
