US macro: slowing but not crushing

The US industrial ISM inched down to 50,6 pts. in August from 50,9 pts. in July. This is the lowest level in more than two years yet at the same time it is clearly higher than assumed by the market consensus (48,5 pts.) not to mention the reading suggested by regional indicators (The Philly Fed for instance suggested a massive contraction). Initial claims were also a notch better (down to 409k), suggesting that companies are in no rush to reduce their payrolls as they were in the fall of 2008.

Altogether the data released this week point to a slowdown but not to a recessionary crash in the US economy and reaffirm our view that we are more likely to witness a prolonged period of a subdued growth rather than another deep recession. The confidence seems to be a major problem and requires a responsible answer from politicians – something that we are yet to see. 

Equity markets – Goldman pessimistic about payrolls

While the market reacted positively to the ISM, the moods dwindled quickly on the remarks from Goldman Sachs that the payrolls reading for August may be as low as +25k vs the market consensus of +75k. This is somewhat surprising as the data already released suggest a reading closer to +100k.

The payrolls report (8.30 ET, 14.30 CET) may have a decisive impact on equities as the bulls are losing steam and a poor reading could spark a selling wave. The first support on S&P500 futures is located at 1170 pts. while the key resistance remains at 1241 pts.

EURCHF – data too good to hit the CHF

The Swiss franc is back this week and what seemed like a profit-taking at the beginning has turned out to be a strong movement that has already broken a support level below 1,14 and may well test another one at 1,1150.

The data released yesterday (GDP +0,4% q/q, PMI at 51,7 pts.) confirmed a slowdown but nothing more than that. The slowdown – at the moment at least – is not stronger than in the euro zone or in the US and with no signs from the SNB (this week) investors favor the Swiss currency. A stronger impact may come from the inflation data next Tuesday but for now the EURCHF is declining strongly and the market may try to find at what level the SNB is going to act once again. 

Przemysław Kwiecień PhD, Chief Economist

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