Market news 27 September 2019

Global manufacturing is thoroughly in the doldrums and the malaise has spread from Europe/Asia over to the US...

• The eurozone composite PMI reading fell to 50.4 in September (August: 51.9, consensus: 52.0), with both manufacturing and services readings lower than August readings (45.6 and 52.0 respectively). The figures for Germany were particularly weak, with the services index falling from 54.8 to 52.5 and manufacturing at a decade low of 41.4, leaving the composite reading below 50 for the first time since April 2013.
• The German IFO business climate survey reflected a similar picture – the forward-looking expectations component fell from 91.3 to 90.8 over the month, now at its lowest level since 2009.
• US PMIs were marginally better this month than last – manufacturing increased from 50.3 to 51.0 and services increased from 50.7 to 50.9. Whilst these readings were more positive than those coming out of Europe, the trade-led slowdown continues to constrain factory production and export conditions. The Richmond Fed manufacturing survey dropped to -9 in September from +1 in August driven by weaker shipments and new orders.

...the US household sector is in better shape though

• Whilst the US Conference Board consumer survey reported a sharp decline in September to 125.1 (August: 134.2) as escalations in trade continue to cause uncertainty for spenders, the index remains at highly elevated levels in comparison to history.
• Therefore, it is too early to say definitively that the current consumption cycle is at its end, especially with continuing jobless claims hovering at their lowest levels since the early 1970s and the housing market continuing to recover from last year’s soft patch as evidenced by this week’s robust new home sales and lending sales data.

Equities were sideways to slightly lower this week; oil continues to fall back

• The US House of Representatives has announced that they will proceed with an official impeachment inquiry against President Trump. Whilst impeachment proceedings historically take a number of months, House Democrats claim this will be resolved before the 2020 Presidential election. It is highly unlikely that the Senate will vote to uphold the impeachment assuming this is voted through the House.
• Whilst the announcement was in part responsible for the softening of equity markets this week, it is unlikely to provide an enduring source of weakness (nor did it during the 1998 Clinton impeachment proceedings).
• Brent has drifted back to around $63/bbl, the same level as prevailed at the start of the week prior to the Abqaiq-Khurais attack.