Bad News Is Bad News Again

WHERE WE STAND – Short & sweet this morning, as I write from a hotel room here at Silverstone, preparing to be humbled by the Aston Martin supercars I’ll be driving round the track later. There are some nice perks to our sponsorship of the F1 team, and not only the snazzy green jacket that I’ve now been given!

Anyway, in terms of yesterday’s developments, the latest ISM services survey was the calendar highlight, with the figures doing nothing to allay the market’s concerns over a Stateside economic slowdown. Not only did the headline index slump to 50.1, well below the forecast range, but weakness was also seen in the key New Orders and Employment sub-indices. In one respect, this doesn’t tell us much that we didn’t know before, given Friday’s dismal labour market report; on the other hand, the PMI figures reinforce the idea that the jobs data wasn’t a blip, and could well be a sign of a deeper, and more ingrained, slowdown in the US economy.

Whatever the message, it was enough to trigger another bout of equity selling. After bad macro news proved good news for stocks on Monday, the opposite ended up being true yesterday, with benchmarks on Wall St lurching lower across the board. Anyone else struggling to keep up here?!

My conviction in the tactical bull case continues to wane, with the economy seemingly starting to crack, trade tensions on the rise once more, and seasonality typically poor at this time of year too. While earnings growth remains solid, and the longer-run path of least resistance should continue to lead higher, the bull run could well take a temporary pause for breath.

Elsewhere, yesterday, besides an incredibly rambling CNBC interview with President Trump – which I, wisely, decided to skip in favour of a lovely lunch at St John – there was little by way of fresh information. As a result, G10 FX, DM Govvies, and gold, all traded in relatively contained fashion.

My base case remains that the greenback will continue to face headwinds for the time being, not only as macro data turns sour, but also as Trump continues to erode the Fed’s monetary policy independence, especially with his soon to be named Governor pick almost certain to be a ‘yes man’ (or woman). In that environment, the EUR, and gold, are probably the best bets in terms of long-term appreciation.

LOOK AHEAD – A pretty barren docket up ahead, perfect for a day off the desk!

There’s very little by way of scheduled events to watch out for, with the data slate containing only June’s eurozone retail sales report, as well as a handful of Fed speakers, all of whom will likely reiterate the ‘wait and see’ approach with which we’ve become familiar, despite the dismal July jobs report.

Besides that, we have a 10-year sale from the States this evening, which will be closely eyed amid concerns over the economy’s potentially fragile underbelly, while notable earnings today come from the likes of Uber and McDonald’s.