Weak trade data out of Asia
- Japanese production declined more than expected in August – industrial production fell -1.2% over the month (June: -3.3%, consensus: -0.4%) and shipments decreased -1.4%. Construction, producer goods and durable consumer goods all declined.
- South Korean exports were weaker than consensus in September, falling -11.7% year-on-year (YoY), with semiconductors the biggest detractor, only slightly offset by the slowing decline in steel exports, which saw a pickup in demand from ASEAN economies and Japan over the month.
- The World Trade Organisation has revised down their forecasts for global trade, citing escalating trade tensions. World trade volume growth is now projected to be just 1.2% for the year – less than half of the 2.6% growth forecasted as recently as April of this year.
Business surveys consistent with 'mid-cycle slowdown'
- The US manufacturing ISM survey recorded a 10-year low reading of 47.8 (August: 49.1). Employment fell to 46.3, its lowest reading in over 2 years, and production and new export orders also declined over the month.
- The US non-manufacturing ISM also disappointed in September, down 3.8 points to 52.6, mostly driven by activity and new orders components. Services employment was down -2.7 points, leaving the component reading at the lowest level seen since early 2014 and indicating some spillover from the weakness in the industrial sector.
- On the other hand, Emerging Asia saw a slight pickup in PMI data – Taiwan produced a survey reading above contraction for the first time in 11 months (September: 50.0, August: 47.9), whilst the China Caixin Manufacturing PMI unexpectedly rose to 51.4 (August: 50.4).
- The composite JP Morgan Global Manufacturing PMI ticked up moderately for the second month running in September to 49.7. The sub-indices followed a similar trend to previous data – investment goods and new order intakes deteriorated as trade uncertainty continues to weigh on spending plans, whilst consumer goods fared better. Although still below the 50 mark signalling contraction, this represented the highest monthly reading since May this year.
- September US non-farm payrolls were 9k behind expectations at 136k, but on the other hand, the previous two months’ readings were revised up a combined 45k. Unemployment fell to a 50-year low of 3.5%.
Recession fears are rising and a sea of red for equities
- Equities began last week firmly on the back foot, rattled by signs that the US economy was becoming infected by the same malaise as other major economic regions. However, by the end of the week the mood had improved somewhat, helped in part by the reassuring US job report.
- US bond yields were still down 15-20bp on the week, with shorter-dated bonds outperforming as the market now anticipates another 25bp rate cut at the Fed’s October meeting is more likely than not.