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Markets Beginning to Look Increasingly Jittery in Preparation for Global P.M.I Data Releases

August 21, 2020


There are a whole host of things to be anxious about these days. And a quick browse of the top news stories the last couple of days doesn’t really leave you feeling very calm with the weekend looming: The U.S has demanded the UN re-impose its sanctions on Iran (Europe and other allies are saying “No”). A suspected poisoning in Russia of a key opponent to Putin plus the ongoing tensions in Belarus isn’t helping matters either. Nor does continued pessimism over Brexit talks. Throw some rising Covid-19 figures of some big European countries into the equation. And there may even be some nervousness ahead of Joe Biden’s Democratic nomination acceptance speech tonight – could he say anything market negative to appeal to the more progressive wing of his party? It’s anyone’s guess.

It’s not all doom and gloom though. On the trade side, it appears as if the phase-1 US-China deal is still being pursued, Larry Kudlow has remarked that China is “buying a ton of goods” so if this can be interpreted at all, it sounds positive. And Beijing is currently reaching out to the US to continue talks, so that is broadly encouraging too. It could be argued that markets should take some motivation at the depth of opposition to President Trump’s nomination of Judy Shelton for the Federal Reserve, given her penchant for the gold standard (really, not a helpful idea unless you want interest rates to rocket and markets to collapse), and the ECB minutes overnight also seem to be setting up the market for a September dovish pivot – also encouraging.

I don’t feel that the current market sentiment is sounding particularly worrying, at least not yet. There are some scary undertones for sure. But for those with a more open or positive viewpoint, the general refrain will still be sounding fairly up-tempo. It could be some time yet before the market is ready to consider ending this trend.

PMI Data Releases

I foresee a fairly quiet day, but we’ve already had some data releases in the Asia-Pacific region, the one which caught my eye most is the Australian PMI numbers. PMIs will be released across the globe today, and Australia, as usual, is first to kickstart that process. There is not much to say about the 53.9 reading on manufacturing in August – insignificantly different from the 54.0 registered in July. But the 48.1 figure for services is a big drop from 58.2 number the previous month and takes services back into contraction. This is more than likely a function of the Victoria lockdown and continuing concerns over restrictions in other states, such as neighbouring New South Wales. Which all goes to show how Covid-19 is still driving the macro story. With PMIs out of Germany, France, and Spain later today, we may see rising Covid-19 numbers having a similarly unsettling effect, though the response to the rising Covid-19 numbers in Europe seems to be more moderate and focussed than that in Australia, which could soften any services PMI blow they experience.

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