The repercussions of the weak US manufacturing PMI continued to rattle financial markets yesterday. Equity prices were lower across the board and the safe-haven yen (though not the Swiss franc) led the major currencies. Sterling had a moderately positive day, neither helped nor hindered by the government's "final" Brexit proposal to the EU.
Tuesday's ten-year low in the ISM purchasing managers' index for US manufacturers clearly hit a sensitive nerve among investors. Since its release, the DJ30 index of American share prices has fallen 3.4% while the FTSE100 and Euronext 100 are down by 3.9%. The risk-off mood was automatically helpful to the Japanese yen, which is 0.5% higher on the day. By contrast, the Swiss franc is 0.5% lower.
The franc's problems were yesterday's consumer price index reading, which put inflation at just 0.1%, and a comment by Andrea Maechler, a member of the Swiss National Bank Governing Board. Speaking in favour of expansive monetary policy, she gave the impression that she would support a further reduction in the SNB's already-negative -0.75% policy rate.
One country, two borders
The prime minister's proposal for a Brexit deal with the EU goes some way to removing the Irish Backstop that was such an obstacle to winning parliamentary approval for Theresa May's arrangement. It would mean, in effect, two borders for Northern Ireland - one with the Republic of Ireland and another with Britain.
The immediate problem, though, is getting it signed off by the EU27 and Parliament before the 31 October deadline, let alone the 19 October trigger date for the mandated extension to Article 50. For that reason, investors are inclined to think that there will be an extension, but they cannot be certain, hence their fairly neutral reaction on Wednesday. The pound is an average of 0.2% firmer against the other majors, flat against the euro and a fifth of a cent higher against the US dollar.
Britain's construction sector PMI did not make much difference to the pound either. At 43.3, it was lower than forecast, and showed activity declining at the second-sharpest pace since April 2009. "Heightened Brexit uncertainty" carried the can as usual.
Services PMIs today
Wednesday's few other data did not really move the dial. ADP reported 135k new US jobs in September, fewer than the expected 150k. It was roughly in line with expectations for a 140k rise in nonfarm payrolls tomorrow. The bulk of today's data is made up by services sector PMIs.
Overnight the two Australian services PMIs from AiG and Markit came in at 51.5 and 52.4 respectively, much as expected. Analysts foresee readings of 52.5 from Germany, 52.0 from Euroland, 50.3 from Britain and 55.1 from America's ISM. A slight decline in US factory orders is likely.
Tonight brings Australia's balance of trade, new home sales and retail sales. The highlight tomorrow will be the US jobs numbers, with the agenda being completed by Canadian trade and the Ivey PMI. There are no UK ecostats on Friday's list.