Global Macro Strategist
Summary: Morning APAC Global Macro & Cross-Asset Snapshot
Happy Macro Thu 3 Oct 2019
APAC Global Macro Morning Brief - Will service PMIs save the day?
One of yesterday obsession continued to be the focus on the US ISM Manufacturing miss from Tuesday, which at 47.8a vs. 50.4e was a pretty big miss & also lower than the previous 49.1.
This was again highlighted given the miss in the ADP payrolls o/n 135k a vs. 140k e (see Dembik’s piece on ISM Mfg. & ADP Report) – its been a long-time since people cared about the ADP, yet that is sentiment for you.
One moment focusing on everything that is all sunshine, unicorns (WeWorks) & rainbows, the next seeing only thunder storms, fraud (WeWorks) & dark nights – the truth is generally somewhere in the space between.
The interesting thing will be whether service PMIs due today, as well as the US ISM Non-Manufacturing will change the current bearish sentiment in the market.
The US is not Germany, the ISM Non-Manufacturing is a lot more important given that over 70% of the US economy is driven by the service sector & domestic consumption – hence it ability to weather a global trade tariffs better than export dependent countries.
And all this potentially just increases the significance of US NFP on Friday… i.e. if we continue to sell-off a big beat on NFP (or even ISM Non-mfg. tonight) could see a very healthy pop upwards.
On a separate note of the trade winds flavour kind, not there is soon to be public showdown in Q4 between the US & the EZ on subsidies received by each respective airline, Boeing & Airbus – it is likely not going to be pretty…
Again someone remind me why the Dax is up +8% YTD in USD terms & +13% in EUR terms, when the USD is at multi-year highs – a fiscal stimulus is not going to help increase exports. So not sure what I am missing here, or if its just a question of time.
Cross-Assets Snapshot:
Predominantly more of what we had previously seen. The S&P continued to sell-off, accelerating to -1.8% to 2888, this time joined by the Nasdaq100 at -1.7%, 7551. The Gold & Silver bulls had another triple digit session with a +1.37% & +1.88% lift to 1501 & 17.60
Yields classically lower as one would expect given the negative sentiment, we closed at c. 1.60% in the session yest & are grinding lower in the Thu Asia morning. Bunds at -55bp will likely paly catch up lower given Germany is closed today for public hols, JGBs continue to trade lower at -18bp this morning.
Brent Crude 57.44 at -2.04% continued to falter, amazing that less than 3wks ago we opened up at close to $72! That’s a c. -20% move, unlevered, once again underlining the fact that there are always opportunities in the markets. Catch Ole Hansen’s latest on energy: Crude Oil Update
On this Thu Asia Morning, our Equity futures are classically down post the negative US session overnight, with Nikkei down close to -2% & event the often resilient Australia market down -2.4%. Note CH equities are closed given the annual Golden Week holiday & are back in on Tues 8th Oct.
Today: Service PMI Day…
Other:
AI: The good, the bad, and the bubble
While a deep recession may not be iminent thanks to central bank policy, interest rates will have to stay high for longer, and this will be accompanied by volatility risk from the unwinding of bubbles, especially within AI.
Steen Jakobsen,
Chief Investment Officer
The emergence of advanced AI systems is by far the most surprising event this year, turning everything upside down, while risks and benefits are debated. AI will also become an arms race between the US and China.
Peter Garnry,
Head of Equity Strategy
As China navigates global fragmentation, its cycle of technology application, productivity enhancement, and growth is threatened by US breakthroughs in generative AI, limited computing power, and geopolitical tensions.
Redmond Wong,
Market Strategist
Japan’s expertise in semiconductors and robotic integration could be the foundation of AI dominance. Combining two of this year's themes, Japanese equities and artificial intelligence, brings a wave of opportunities.
Charu Chanana,
Market Strategist
The AI fever has turned the technology into a darling, pushing crypto further into no-man’s-land. There are striking similarities between AI and crypto, and if these are to come full circle, AI won't be spared for bubbles.
Mads Eberhardt,
Cryptocurrency Analyst
Stocks related to artificial intelligence (AI) have appeared on investors' radars. Expectations are high, but it may be necessary to consider how to get exposure to AI in a diversified way.
Hans Oudshoorn,
Trainer Academy
The USD is on its back foot as markets celebrate an eventual Fed rate peak and steady long US yields. The stakes are even higher for the Japanese yen if longer major sovereign yield curves have to price in economic acceleration.
John J. Hardy,
Head of FX Strategy
While commodities, broadly speaking, have faced some tough months, a partial reversal during June could signal that the asset class is getting back on its feet with energy holding up and precious metals with upside potential.
Ole S. Hansen,
Head of Commodity Strategy
As inflation remains high central banks face hard decisions about whether they should keep hiking interest rates or stop. Meanwhile, the rise of AI creates bubble-like conditions that only make the decision harder.
Althea Spinozzi,
Senior Fixed Income Strategist
