This past week was another volatile one in global markets. The real volatility started on Tuesday when the US ISM Manufacturing PMI for September missed forecasts by a big margin (47.8 vs 50.4 forecasted). This measure is especially important as it is seen as one of the most reliable leading indicators of the overall US economy, and a decrease is seen as a possible pre-cursor to a US recession.
More bad news were to follow last Wednesday with the ADP Non-farm employment change also showing signs of slowing down and missing estimates (slightly). This is a measure of the monthly change in non-farm, private employment by US businesses and a slowdown in job creation can indicate more constrained consumer spending and ultimately, a downturn in economic activity.
By the end of Wednesday, markets were heavily sold off with recession fears making headlines everywhere. Thursday followed with more disappointing data out of the US, this time ISM Non-Manufacturing (Services) PMI for September missing estimates. By this time, the market’s expectations that the Fed would need to cut interest rates at the end of October (their next meeting) in order to help and support the US economy, were very high. This gave markets a much-needed boost on Thursday, recovering some of the losses for the week so far.
Friday brought with it a mixed bag of employment data, but the optimism for another interest rate cut carried on. Jerome Powell (the US Fed Chairman) gave a short speech on Friday where he remarked that the US economy is overall in a good place though it faces some risks. He didn’t go into any real detail, as this will probably be done tonight (Monday) and tomorrow night (Tuesday) when he is scheduled to speak again. Investors will be listening closely as to any guidance he gives to the Fed’s interest rate decision scheduled for the end of October.
More Events to Watch This Week
This week looks to be another volatile one, with Chinese markets re-opening tomorrow after their week-long holiday. US-China trade relations are fragile at the moment with China apparently reluctant to agree to a broad-based trade deal when the two countries meet on Thursday for the next round of trade negotiations.
As mentioned above, Jerome Powell is set to speak tonight and tomorrow night. This, along with the release of the Fed Meeting Minutes on Wednesday evening (SA time) will definitely move markets as it will show how accommodative the Fed is willing to be and how serious they view the recent downturn in US economic data.