American markets came back from the Labor Day long weekend all eager and promptly resumed their week-long tank after better-than-expected surveys of service sector activity confirmed the strength of Friday’s August jobs report.
The strong performance of the bulk of the US economy in August and the 300,000 plus new jobs last month (ignoring more than 100,000 cut from the previous three months figures) saw US bond yields rise sharply, signalling investors see another big rate rise from the Fed later this month, after a big rate rise Thursday from the European Central Bank.
The US dollar again rose and the Aussie currency dipped to less than 67.50 US cents to 67.35 and heading towards the 2022 low of 66.82 US cents in July which was a strange fall given the news on Tuesday in Australia of a record sized current account surplus for the June quarter, trade performance and terms of trade.
That performance would normally bolster the value of a currency but Australia has now notched up 13 current account surpluses in a row – also a record – and lately its surging demand and prices for coal and LNG from an energy-short Asia (but not China) and Europe that has become the driver for the trade boom.
Tuesday’s 0.50% rate rise from the Reserve Bank came and went with the predictable moans and groans from media and others but so far as markets are concerned, it wasn’t a shock.
Today sees the June quarter and 2021-22 financial year GDP data released – annual growth in the 12 months to June could be as high as 3.5% after the strong trade figures.
Wall Street’s weakness on Tuesday saw the overnight ASX futures fall 37 points, meaning another lacklustre day of trading here.
Weak commodity figures, especially oil, iron ore ($US97.10 on the SGX futures market in Singapore) and thermal coal (down $US15 a tonne to around $US451 on the Newcastle ICE futures exchange).
Foreign exchange markets have ignored that and preferred to treat the Aussie currency as a proxy for China’s stuttering economy rather than an energy powerhouse, for which the country should be grateful as the lower value of the Aussie dollar helps us maximise the record or near record US dollar prices for coal, LNG and helps offset weaker prices for iron ore, wheat and metals.
The US dollar though is being driven by expectations for more rate rises from the Fed.
That saw the Dow dip 173.14 points, or 0.55%, to close at 31,145.30. The S&P 500 slipped 0.41% to 3,908.19 while the Nasdaq Composite lost 0.74% to 11,544.91, for its seventh day of losses, the longest slide since 2016.
While stocks were sliding, US bond yield were rising strongly – the yield on the 10 year US Treasury bond jumped as much as 0.162 percentage point (16 points) to 3.353% at one point in the day. It finished at 3.349%.
That came after the August survey of activity in America’s huge services sector – more than 70% of the economy, was stronger than expected, coming in at 56.9 versus expectations of 55.5. The report follows Friday’s August jobs report, which also beat Wall Street’s expectations, showing a stronger US economy than believed by investors.
The stronger than expected economic data may mean that the central bank continues to make aggressive interest rate hikes.
Now US markets will be watching a speech Thursday from Fed chair, Jay Powell which will come after an expected 0.50% rate rise by the European Central Bank, as well as some more details of the worsening energy position from Europe and the UK.
