It’s been another wild night for trading with significant moves underway across a number of indices, commodities and currencies. Chinese markets, Crude prices and service PMI reports have been the main drivers of trading action through overnight sessions.
For the most part, service PMI reports have confirmed the weakness seen in the manufacturing PMI figures reported earlier in the week. China Caixin service PMI dropped close to the 50 line between expansion and contraction while France fell below it and Australia dropped deeper below the waterline. Italy and India showed the most improvement.
On this news stock markets around the world have been trading broadly lower with major indices down 1-2%. US indices which had fallen less earlier in the week are down about the same amount as their overseas peers. News of a nuclear bomb test in North Korea appears to have rattled confidence as well.
One of the most significant moves overnight has been the 1% drop in the offshore Yuan (CNH). This indicates that having moved their benchmark to a basket of currencies, Chinese authorities are prepared to allow their currency to float more freely and appear prepared to allow further declines. The prospect of a weakening currency (after the USD peg dragged it so much higher against everything else over the last year) his helped to support mainland Chinese indices which were among the few to post significant gains overnight. Indications that selling bans on large shareholders which end Friday could be replaced by new regulations and handshake agreements to not make waves also appears to be helping rebuild support.
Crude oil is under pressure again overnight squeezed from both the supply and the demand side. Soft PMI reports this week indicate the demand for oil is likely to remain subdued for some time. Meanwhile traders have been increasingly seeing the growing political standoff between Saudi Arabia and Iran as a sign that there is unlikely to be any co-operation among producers to manage supply any time soon.
The prospect that the price war could continue for a long time to come has WTI retesting its recent lows near $34.00 while Brent has broken down below is 2008 low again and $35.00. We could see more action around the US DOE weekly inventory reports but traders should note that a big surprise drop in API inventories overnight was pretty much ignored, overshadowed by geopolitical events.
It looks like we could be in for an active day for trading in US markets with a lot of economic data for traders to chew on. First up is the ADP payrolls report. The street is expecting about 200k but I think we could get a miss into the 160K area. I think some employers may have held off hiring in the first part of the month waiting to see if the Fed would actually hike interest rates and then the holidays hit right afterward. We also could potentially see a big upward revision to the previous month which was below the nonfarm payrolls figure. Trade data for the US and Canada could also have an impact.
FOMC minutes are also out today but since there was a press conference and member projections, there may not be too many surprises left. Traders may look to the minutes for signs of how many rate hikes could be on the way this year with recent Fedspeak suggesting 4 potential hikes (one each quarter) although I’m still thinking 3.
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