Pound Slips On PMI Data, Natural Gas Outperforms, G20 Recongise Need For Fiscal & Structural Policies, ASX SPI200 Futures Up 4 Points

U.S. equity markets finished higher on Friday, with both the S&P500 & Nasdaq100 up +0.46% & +0.41% respectively as the U.S. dollar gained +0.48%. Markit manufacturing PMI data for July improved month on month with a reading of 52.9 vs 51.5 expected however this was the only notable data release. Better than expected earnings, the attraction of new all-time highs for the S&P500 and expectations that the FOMC will only proceed with rate hikes very gradually continue to be supportive of risk assets while we can also see safe haven assets such as gold and U.S. government bonds being sold off as investors moving into riskier assets. The first chart below highlights the declining spot gold price along with the rising yield on U.S. ten year government bonds reflecting the recent risk on sentiment.

Sticking with North America data out of Canada on Friday showed improvement, retail sales (MoM May) gained 0.2% vs 0.00% expected while importantly the consumer price index from the Bank of Canada (MoM Jun) avoided deflation with a reading of 0.0% vs estimates of -0.1%. Year-on-year inflation remained stable at 2.1% surpassing estimates of a 2.0% gain.

The British Pound fell -0.93% against the U.S. dollar, the FTSE250 declined -0.38% while the FTSE100 gained +0.46% following the release of Markit’s PMI composite for July which missed expectations of a decline to 48.5 with a reading of 47.7 month on month. The composite was dragged down by services PMI which declined to 47.4 from 52.3 in June while manufacturing provided some positive news with the survey beating expectations of 47.5 with a reading of 49.1. Overall the data is seen as negative with a reading of less than 50 signalling contraction.

Markit PMI data for the Euro-zone was more positive, the composite survey for July surpassing expectations of 52.5 with an actual reading of 52.9. The survey was boosted by better than expected results for services PMI with a reading of 52.7 vs expectations of 52.3 while manufacturing lagged behind with an actual of 51.9 vs 52.0 estimated. European equities were generally mixed in response with the Euro Stoxx 600 down -0.07%, DAX30 -0.09%, CAC40 +0.11% as the Euro fell -0.44%.

The stronger U.S. dollar continued to weigh on commodity prices with both WTI & Brent crude oil falling -1.25% & -1.10% despite the Baker Hughes U.S. rig count for July 22nd declining to 462 from 447 the previous week. Copper declined -0.98% as did iron ore -2.27% while natural gas outperformed gaining +3.16% following warmer than expected temperatures on the U.S. eastern coast raising demand for electricity and therefore causing plants to consume more of the gas. The second chart below highlights natural gas which has shown weakness over the past few weeks as a result of cooler temperatures however warmer weather is expected over the coming two weeks seen helping to reduce a supply glut in the U.S. and push prices higher.

China hosted finance ministers and central bankers at a G20 summit in Chengdu over the weekend with the communique stating much of what was expected. There was universal agreement that G20 members needed to step up fiscal and structural policies, recognizing that monetary stimulus cannot do all the heavy lifting alone to achieve balanced growth. There was also a recognition of concerns around protectionist policies and members noted “more needs to be done to share the benefits of growth and economic openness”.

Locally the ASX200 declined -0.26% on Friday as did the Australian dollar down -0.53%, meanwhile the market is set for a flat open this morning with ASX SPI200 futures up a modest 4 points. If you’re interested in trading global markets and still need practice, click here to open a free $100,000 Rivkin Trader account. 

Data releases:

·         Japanese Merchandise Trade Balance (MoM Jun) 9:50am AEST

·         German IFO Business Climate, Current Assessment and Expectations (MoM Jul) 6:00pm AEST

Chart 1 – XAUUSD (Spot gold) & U.S. 10 Year Government Bond Yield

Chart 2 – Natural Gas Futures

Source: Rivkin, Bloomberg

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This article was written by James Woods - Global Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3600.

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