Market Overview

Market Overview – by Junaid Wilson

Yesterday, we saw the AUS, NZD continue higher throughout the day. EUR and GBP headed higher later in the US session. The JPY made gain but gave them back in the Asian session.

The yesterday’s economic news was mixed to solid with weakness in the ISM, a report that points to a November downturn for manufacturing, offset by strength in vehicle sales and in construction spending, both reflecting strength in the domestic consumer. And the dip in the ISM, where the index fell to 48.7 for a six-year low, is not a great surprise given that the factory sector, hit by weak exports, has been soft all year.

The Dow jumped a sizable 1.0 percent to 17,888 and money also moved into Treasuries where the 10-year yield fell 6 basis points to 2.15 percent. Lower rates are often a negative for the dollar where the dollar index fell 0.5 percent to 99.78. Oil remains very soft, just under $42, with gold steady near $1,068.

Canadian GDP: As expected, the economy pulled itself out of recession last quarter but growth was still quite sluggish and would have been still weaker but for a decent hand-off in June. Indeed, while a 0.6 percent increase in total output versus April-June was in line with expectations, it still masked a surprisingly sharp 0.5 percent monthly contraction in September

In fact, the third quarter expansion came largely courtesy of a 2.3 percent surge in exports which, combined with a 0.7 percent decline in imports, saw net foreign trade add nearly a full percentage point to quarterly growth. Elsewhere, household consumption rose 0.4 percent, down from a 0.6 percent gain last time, but gross fixed capital formation fell 0.7 percent, compounding a 1.5 percent drop in the second quarter. Within this, business investment in non-residential structures, machinery and equipment shrank 1.5 percent and easily more than offset a 0.6 percent rise in residential structures.

US ISM: ISM’s manufacturing index broke below in November to 48.6 which is more than 1 point below low-end estimate for the lowest reading since June 2009. The decline includes a significant dip for new orders which are down 4.0 points to 48.9 and the lowest reading since August 2012. At 43.0, backlog orders are in a six-month streak of contraction. With orders down, ISM’s sample cut back on production, down nearly 4 points to 49.2, and cut back on inventories, down 3.5 points to 43.0. Employment firmed but remains soft at 51.3.

A convincing detail in the report is the breadth of weakness with only five of 18 industries reporting composite growth in the month. Transportation equipment, getting a boost no doubt from aircraft and motor vehicles, is among those in the plus column while the negative column includes petroleum as well as a number of capital goods industries including machinery, primary metals, and fabricated metals. Weakness in these industries points to weakness in business expectations.

This report is closely watched and will raise expectations for a quick reversal in the factory sector which, in October at least, did show glimpses of strength. And though Friday’s employment report is most pivotal for the December FOMC, this report does not point to urgency for a rate hike.

Today we had data from the UK and waiting for Inflation from the Euro area and the ADP report from the US

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