Equity markets – CB up, good news from Asia

Conference Board, the US major sentiment index unexpectedly moved up in August (to 53,5 pts. from revised up 51 in July), reversing a large part of the July’s decline. This positive surprise was helpful as it stopped a wave of fear (mostly ahead of Friday’s payrolls) clearly gaining momentum. However, from a longer perspective it’s not a game changer. The index still seats at annoyingly low level and doesn’t offer any hope for a shopping rush from households.

Brighter long-term implications come from the Asian data. The Chinese PMI snapped a three-months’ losing streak with a rise from 51,2 to 51,7 pts. The Australian GDP rose by an impressive 1,2% q/q in the Q2, beating the market consensus (+0,9%) and displaying a healthy structure (growth fueled by both consumption and net exports). A solid performance of the Asian economies (with a notable exception of Japan) provides an important buffer for the global economy, should the conditions in the US economy deteriorate further.

Interestingly, the key move on the futures for the S&P500 took place yesterday in the early European trade, far earlier than the data was released. The index bounced up from the support of 1037 pts. for the third time within a relatively short period. The data provided a further incentive to move higher and at the moment any outcome is possible. The index needs to move above an upper line of (a mid-term) declining channel in order to pave the way towards a resistance of 1098 points.  

EURCHF – moving lower

A failure at drawing a morning star formation at key supports we described last week pushed the EURCHF lower. Surely, one may attribute the move to a poor global sentiment but since both the major Wall Street indices and the EURUSD still resist the downside pressure, it doesn’t fully explain a behavior on the EURCHF. Looking at the speed of the slide, a 1,2370 technical target (full match of a range of the previous move, from May 21st to July 1st) is not out of the question.

While in the longer term, a negative impact on the Swiss economy may force a major reversal on the pair, a translation on the real economy may take several months (leaving room for a mid-term appreciation of the frank, especially under conditions of gloomy sentiment on the global markets). The Swiss data to watch this week include PMI (today, 3.30 ET, 9.30 CET, expected at 66 pts.), GDP and retail sales (tomorrow) and CPI (Friday).

Events to watch – ISM, ADP

The Asian news was good but today we are back to the US figures. The ISM (10.00 ET, 16.00 CET, consensus 53 pts.) may not have a huge immediate impact on the market but has a significant forecasting power. A turnaround at the beginning of 2009 heralded a shift in the global trends but the index has peaked in April (along with the US equity indices) and is moving lower since then. The market expects a fourth decline in a row, which is well justified by the declines in regional indicators (Philly Fed, Chicago PMI). The ADP (8.15 ET, 14.15 CET, exp at +18k) has not been a perfect indicator for the government report, but anything concerning the US labor market is bound to attract a lot of market attention. There are also final PMIs in the euro zone and a PMI in the UK (4.28 ET, 10.28 CET, consensus 56,5 pts.).

Przemysław Kwiecień, Chief Economist

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