Daily Wrap Up 03 October 2022

3 Oct 2022 04:37 PM

Wall Street jumps as manufacturing disappoints 

US stocks are driving higher due to the weaker-than-expected manufacturing data as traders are taking the view that bad news for the economy is good news for the stock market. This morning Dow Jones index futures fell to a two-year low but since then sentiment has turned around, and now the market is up over 2%. European equity markets are set to close higher, and the rally in US markets helped mood on this side of the Atlantic.

The headline ISM manufacturing reading was 50.9, its slowest growth reading in over 18 months, and it missed the 52.2 forecast. The main figure masks the underlying issues in the sector, as the new orders reading was 47.1, and that was a big drop from the 51.3 seen in the previous update, it suggests there was a sharp fall in activity, possibly because demand is weakening. The employment metric fell from a respectable 54.2 to 48.7 - this could be an early warning the labour market is in trouble. On a more positive note, the price’s paid metric was 51.7, down from 52.5, it is encouraging to see that prices are growing at a slower rate because is likely to feed into lower inflation across the board. High inflation is the reason why the Fed is tightening monetary policy and considering the fall in prices paid, we could be witnessing further signs that we are beyond peak inflation. In some pockets of the markets, there is speculation the Fed might “pivot”, meaning the bank might look to hike interest rates at a slower pace, hence the weakness in the US dollar.

Sterling is rallying as the UK government did a U-turn on its proposed 45p tax cut, the move boosted the pound for two reasons, firstly, it won’t lead an additional debt, and secondly it shows the Truss administration are flexible. The public made their opinion clear about the planned cut, and the fact the government backed down suggests they might compromise on other plans too. The pound has pulled back some of the ground it lost last week but it is still considerably weaker on the month.

Commodities are also enjoying a bullish run, the slide in the US dollar and the chatter about a potential Fed pivot, is helping gold as the metal is up over 1%. Brent crude and WTI are up 3.6% and 4% respectively ahead of this week’s OPEC+ meeting, there is chatter the body will reveal a cut in output, and some energy analysts believe it might be as large 1 million barrels per day.

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