US Futures Pressured By European Weakness; Oil Flat

Yesterday’s strong non-manufacturing ISM also added a layer of complexity to the ongoing debate about the US jobs situation, especially ahead of tomorrow's payrolls. As we noted above, the employment component picked up 6.5 points to 57.2 - the biggest climb on record. When looking at the composite ISM employment series (manu and non-manu) and regressing it against payrolls, DB's Jerome Saragoussi yesterday suggested that it is now consistent with 230k on payrolls. The equivalent figure was 30k last month. If we smooth the data by regressing the 2m MA of the ISM series with 3m MA of payrolls then we get a 130k number. Jerome adds that in 2016 ISM employment has generally been soft and under predicted payrolls. However the softness in ISM seems to have been reflected in lower average weekly hours (AWH) and thus lower labor input growth rather than much lower NFP. It is therefore possible that the recovery yesterday in ISM employment gets reflected in higher AWH rather than particularly strong job creation.

That employment component data in the ISM print seemed to overshadow what was a relatively uneventful but slight disappointing ADP reading. The 154k print for September was marginally below the consensus of 165k and follows a 2k downward revision to the August reading of 175k. It was actually the lowest reading since April but still fairly in keeping with a strong but cooling labour market view. It certainly didn’t feel like a big enough miss to sway payrolls expectations, especially given the ISM number. Market consensus is running at 172k for tomorrow's payrolls.

Switching our focus over to the latest in Asia this morning now where, despite WTI giving up half a percent or so in the early running, the rally for Oil yesterday has helped energy stocks to rally in the region, with bourses up as a result. Indeed the Nikkei (+0.63%), Hang Seng (+0.43%), Kospi (+0.31%) and ASX (+0.48%) have all edged up. Sovereign bond yields, particularly in Australia and New Zealand (where 10 yields are up 3bps) are generally higher, while in the FX space Sterling (-0.19%) has seen a small amount of additional selling pressure this morning.

Yesterday was also global PMI day with the final services and composite revisions released. In the US the services reading for September was revised up 0.4pts to 52.3 at the final cut which, combined with the manufacturing print, puts the composite at 52.3 and the highest since April. In Europe the final composite PMI for the Euro area came in unchanged at 52.6 while the services PMI was revised up a smidgen (0.1pts) to 52.2. As expected the first look at the periphery revealed some deterioration for both Italy (50.7 from 52.3) and Spain (54.7 from 56.0) in the services sector. Overall however, our Europe economists believe that the data is consistent with +0.3% qoq GDP growth in Q3. That said, recent hard data including the August retail sales print yesterday (-0.1% mom) have been on balance less positive which adds extra focus on the August industrial production prints due over the next week.

Meanwhile the run of decent data for the UK continues. The composite PMI in September printed at 53.9 which puts it now at 6.4pts above the July post-Brexit lows and at the highest level since January. In terms of the rest of the US data, factory orders (+0.2% mom vs. -0.2% expected) surprised to the upside in August although the bumper July reading was revised down from +1.9% mom to +1.4% mom. Finally the August trade balance revealed a slight widening in the deficit to $40.7bn from $39.5bn.

Before we look at the day ahead, the Fed’s Lacker was vocal once again yesterday. He maintained his hawkish stance saying every meeting is live and that ‘there are signs that inflation is heating up’ and so ‘there’s a strong case to raise rates more rapidly’. Speaking overnight, the Fed Vice Chair Fischer has said that ‘ultra-low interest rates are not necessarily here to stay, especially if the right policies are put in place to address at least some of their root causes’. Fischer also highlighted that ‘policies to boost productivity growth and the longer run potential of the economy are more likely to be found in effective fiscal and regulatory measures than in central bank actions’.

Looking at today’s calendar there isn’t a huge amount of data to highlight. This morning in Europe we’ll get factory orders in Germany for the month of August while at lunchtime we’ll get the latest ECB meeting minutes from the September meeting. A reminder that this was the meeting where there was an element of market disappointment given that there was no obvious indication that a QE extension announcement was around the corner. This afternoon in the US the only data due out is the latest weekly initial jobless claims print. Away from the data the ECB’s Praet is due to speak this afternoon in NY.

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Chee Hin Teh 5 years ago Member's comment

Thanks Tyler again.