Between The Lines; morning roll call
Despite the UK service sector survey hitting pre-recession highs it’s far too early to celebrate…
We’re big fans of Markit Economics, however, we’re just a little concerned that the 
mainstream financial press are becoming a little over excited with each publication that Markit publishes. The key issue is that these diffusion surveys are just that – surveys, they’re not ‘fact’ and should not be treated as such. Whilst Markit has a good reputation as a ‘sentinel’ before the facts they shouldn’t be regarded as invincible. They are prone to be overly enthused and misdirected by their survey respondents. There have been many occasions were their data fails to correspond with the facts…
On Tuesday we’ll experience a real test regarding their predictive powers with the official publication of the UK’s ONS report on manufacturing. Markit had the last UK manufacturing survey increasing to 54.6 from 52.9, yet in the previous ONS report the UK manufacturing registered as a minus figure, -0.8% to be precise. Given that the ONS data preceded the Markit survey by only three weeks the UK must have experienced quite a dramatic turnaround in such a short space of time. Or the reality gap, between respondents and the facts, is somewhat confused and misleading. Either way we’ll obtain the ONS data mid-morning in the London session. Perhaps then we can begin to reasonably evaluate just how accurate Markit are in judging sentiment versus the reality.
Market overview
Despite the positive vibe created by many of the European service industry PMIs published by Markit on Monday, European bourses failed to hold onto the early gains experienced in the morning London session. The USA ISM non manufacturing survey was bullish, an increase from 52.2 to 56, despite this the USA indices failed to close up. Perhaps the NFP print on Friday had a delayed reaction. Many analysts and market commentators will have digested the jobs number over the weekend and as they returned to their desks Monday, began to recognise just how poor a print of 162K jobs is given the massive amounts of monetary stimulus the USA Fed has engineered in 2013.
The accepted wisdom is that the USA will have to create circa 280K + jobs each month (over a sustained period of perhaps two years) in order to reach the mythical 6.5% unemployment rate, the point at which the current monetary easing of $85 billion a month will be terminated.
Closing prices on Monday August 5th
The DJIA closed down 0.30%, NASDAQ closed up marginally by 0.09% and the SPX closed down 0.15%. The UK FTSE closed down 0.43%, the CAC up 0.11%, DAX down 0.10%, MIB down 0.13% and the IBEX down 0.13%.
Looking at commodities crude once again proved to be a tricky security to trade; ICE WTI crude closed down 0.23% at $106.56 per barrel. NYMEX natural closed up 0.12% at $3.32. COMEX gold closed up 0.05% at $1303.10 per ounce. COMEX silver closed down 0.18% at $19.68 per ounce.
Forex focus
The dollar plunged by 0.7 percent to 98.30 yen late in the New York session on Monday after sliding by 0.6 percent on Aug 2nd. The greenback rose 0.1 percent to $1.3258 per euro. The yen strengthened 0.8 percent to 130.33 per euro after depreciating to 132.74 on July 24th, the weakest level witnessed since May 23rd.
Sterling rose for a second consecutive day versus the greenback as the U.K. services data PMI suggested Britain’s economy may be improving. Sterling advanced 0.4 percent to $1.5356 after jumping 1.2 percent on Aug 2nd, the biggest gain witnessed since June 6th. Sterling also appreciated versus the euro, 0.6 percent to 86.34 pence per euro.
The kiwi fell for a sixth consecutive day versus the greenback after Fonterra, the world’s largest dairy exporter, said on Aug 3rd that three batches of their whey protein made at a New Zealand plant may contain bacteria causing botulism. New Zealand’s dollar fell slightly by 0.2 percent to 78.24 U.S. cents after falling to 76.84 cents on June 24th, the weakest level witnessed since June 2012.
Dollar Index
The Bloomberg U.S. Dollar Index, which tracks the greenback versus its ten major counter-party currencies, fell by 0.2 percent to 1,027.04 after sliding 0.6 percent on Aug 2nd. Despite this the dollar has gained five percent during the past six months, the best performer amongst the ten developed-market currencies tracked by Bloomberg’s Correlation-Weighted Index. The euro has gained 2.7 percent, whilst the yen has weakened by 0.5 percent.
Fundamental policy decisions and high impact news events that could effect market sentiment on Tuesday August 6th
We’ve already covered the UK ONS manufacturing print due mid morning in the London session. Prior to this we’ll have received the news regarding the Australian interest rate decision and the accompanying narrative from the RBA. If lowered then the Aussie could go into free-fall. Thereafter the other high impact news events concern the trade balances for Canada and the USA.
Canada’s is expected to fall marginally from -$0.3bn to -$0.5bn. The USA is expected to reduce marginally from -$45bn to -$43.1bn.
Germany’s factory orders
Despite not ranking as a high impact news event Germany’s factory orders are also published on Tuesday mid morning, with the expectation of a rise from -1.3% to 1.1%. The previous negative print took the market by surprise, therefore analysts and traders will be looking for a return to growth in Germany. A double negative print could alter sentiment versus the euro as a currency and the EZ dramatically.
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