US Slowdown Sinks all Boats

Since my last update the outlook for global markets has deteriorated quite markedly. The latest economic news from across the pond has not made for good reading. The quite alarming drop in both the US ISM (institute for supply management) indexes has sent another shiver around the equity markets this week. It has also led the futures markets to conclude that the Fed must act to lower rates again this month.

Previously that prospect had been put on the back burner withfutures implied chances of it happening standing at around 25%. Well, after Tuesday and yesterday’s data the odds have risen to above 90%. Now, that might not induce the fed to lower rates again, but even the FOMC must be chewing the cud and wondering if there is something they may all have overlooked. That especially applies to the hawks on the board who only the other week were adamant that another cut was not required this month.

Naturally, the US president wasted no time in blasting Powell and his colleagues again when he saw that the main ISM manufacturing index had fallen below 50 (below 50 signals contraction folks!) on Tuesday. Personally, I hate to even contemplate that Trump might have been right all along inrecent months with his perpetual demand for lower interest rates, but it would seem foolish to deny him that credit now.

However, I am sure it’s not something he would be keen to say, ‘I told you so’ about. My problem with Trump is that he acts and talks like an idiot most of the time where clearly that might not be the case. For sure, like many of you I’d be inclined to take a different view if he was better able to string a sentence together without using the word ‘beautiful’ where no such description is remotely appropriate.

Anyway moving on. The pound has been on another rollercoaster this week. As far as the GBPUSD is concerned 1.22-1.24 covers it so far, but that doesn’t begin to tell the story of some of the gyrations within that range. For sure optimism over the prospect of a ‘happy ending’ did rise yesterday, but the reality is not at all certain on that yet. Once again over the coming week the Queen’s currency will still be at the mercy of each and every Brexit headline that comes its way- much as it has for many a month now.

In regards to the GBPEUR, well, that’s been all over the place inside a similar sort of distance range too, but that 1.1391 retracement target reached the other week (which was identified clearly here beforehand) has held the topside in check and if anything its been the other side that has given way. The price fell back to as low as 1.1190 on Tuesday, but did recover a good deal of ground when it snapped all those loses to rebound to as high as 1.1303 yesterday.

I suppose the one takeaway really in all this price action; is that all the time the price remains below 1.1391, then it has satisfied the rebound correction from lows around 1.0725 seen in August. The current price this morning, at approximately 1.1250 is probably a fair reflection of it being highly pivotal in much the same way as the chances of a deal being reached are. I’d like to be optimistic on that front, but all I have heard this week from the likes of the European steering group cronies does not really give me much cause to justify that really. But hey, a week in politics is a long time as they say and the coming one could certainly do with being even longer I think.

Meantime, the fallout for global equity markets does not look pretty and I repeat all that I have said many, many times over; that I still have no interest in buying equites at any where near these levels. My view is in fact the opposite and that is why I issued something of a vague warning in my previous article on Monday.

Naturally, it all might just turn out fine and I hope that’s the case, but even if it does, I see no value yet from my, rather greedy perspective. So with the equity markets firmly at front and centre today, the latest US employment report is due out at 1.30pm. The equity markets will surely be very sensitive now to a weak report. Conversely, given the data earlier this week, it’s going to take something rather special to turn the ship around- a ship that doesn’t just display the star spangled banner, but has a whole host of other national ensigns hoisted on its stern.

Important Economic Releases/Events Due Later Today

04/10- 1.30pm US September Unemployment Report