US recession fears resurface
Fears the US economy might be heading for an actual recession have resurfaced because of the brutal New York Fed manufacturing index report. The update slumped to -31.1 from 11.1 in July, it was the second largest monthly fall on record, hence the concerns about the health of the US economy. The new orders metric collapsed from 6.2 to -29.6, and the shipments reading tanked from 25.3 to -24.1. Overall, it paints a picture of a sector that fell off a cliff edge. US stocks lost ground in early trading, but they have since moved into positive territory. The S&P 500 is 0.15% higher and it is possible the dismal report might encourage the Fed to put the brakes on its rate hiking programme. The latest US CPI and PPI reports declined and that was viewed as a sign the Fed might reduce the size of additional rate hikes, and that attitude has been echoed by today’s manufacturing data, as falling economic activity and rising interest rates is not a good combination. The U-turn in US indices helped the FTSE 100 and the DAX close higher. The US 10-year yield is fractionally lower as the worries about an economic downturn have pushed up demand for bonds.
The US dollar appears to be benefitting from the flight-to-quality trade. From time-to-time the greenback rallies amid worries about the health of the world economy. EUR/USD and GBP/USD are deep in the red. Traditional risk-off currencies like the Japanese Yen are and the Swiss franc are up.
Commodities are having a difficult session. WTI and Brent crude are both down over 3.5%. The oil contracts have come under pressure for several reasons. Saudi Aramco announced it would lift oil production should the Saudi Arabian government make the request. Counties like the US have been calling for lower oil prices for months, so the statement from the state-owned oil company could be a sign of what is to come. Overnight, China revealed its retail sales and industrial production reports, and they both showed slower growth on the month as well as missing forecasts. This contributes to the view the economy is still struggling to get over its latest round of lockdowns. Silver and copper have come under pressure as a result.