Europe tries to rally after sharp sell off in US

Europe tries to rally after sharp sell off in US 150 150 Realm

Technology led the worst sell-off since June in the US with the tech-heavy Nasdaq down 5% on Thursday, following new highs reached earlier in the week. Markets will be closely watching US payrolls data due later today to further assess the recovery in the jobs market. 

 

Global Macro

  • The ISM Non-Manufacturing PMI for the US fell to 56.9 in August of 2020 from 58.1 in the previous month and in line with market expectations of 57. Still, the reading pointed to the third straight month of expansion in the nonmanufacturing sector as the economy recovers from the coronavirus hit. Slower increases were seen for business activity (62.4 vs 67.2) and new orders (56.8 vs 67.7) and prices increased the most since November of 2018 (64.2 vs 57.6). Also, employment fell less (47.9 vs 42.1). “Respondents’ comments are mostly optimistic and industry specific about business conditions and the economy as businesses are starting to reopen. Industries that have not reopened remain concerned about the ongoing uncertainty. There is a challenge with capacity and logistics due to the pandemic and the impact on deliveries and order fulfilment,” says Anthony Nieves, Chair of the ISM.
  • The IHS Markit US Composite PMI came in at 54.6 in August 2020, little-changed from a preliminary estimate of 54.7, signalling the strongest upturn in business activity since March 2019. New orders rose for the first time since February, with new export orders also returning to growth territory, while employment increase by the most since February 2019. On the price front, input cost inflation was the highest since October 2018, while the rate of output charge inflation softened.
  • US imports jumped 10.9 percent month-over-month to $231.7 billion in July of 2020, the highest reading since March. Still, imports remained below pre-pandemic levels, reflecting the ongoing impact of COVID-19, as many businesses continued to operate at limited capacity or ceased operations completely, and the movement of travelers across borders remained restricted. Purchases of goods increased $21.5 billion to $196.4 billion in July, mainly due to passenger cars ($3.7 billion); automotive parts and accessories ($2.5 billion); industrial supplies and materials ($4.4 billion); finished metal shapes ($1.3 billion); nonmonetary gold ($0.9 billion); crude oil ($0.7 billion); civilian aircraft ($1.7 billion); and cell phones and other household goods ($1.7 billion). Imports of services increased $1.2 billion to $35.3 billion, namely transport ($0.5 billion); travel ($0.3 billion); charges for the use of intellectual property ($0.1 billion) and insurance services ($0.1 billion).
  • Exports from the US increased 8.2 percent to $168.1 billion in July of 2020, reaching the highest value since March. Still, exports remained below pre-pandemic levels, reflecting the ongoing impact of COVID-19, as many businesses continued to operate at limited capacity or ceased operations completely, and the movement of travelers across borders remained restricted. Exports of goods increased $12.3 billion to $115.5 billion, mainly due to passenger cars ($2.1 billion); consumer goods ($2.6 billion); gem diamonds ($0.7 billion); artwork, antiques, and other collectibles ($0.6 billion); industrial supplies and materials ($2.5 billion); crude oil ($1.1 billion); other petroleum products ($0.4 billion); semiconductors ($0.8 billion); and civilian aircraft engines ($0.5 billion). Exports of services increased $0.4 billion to $52.6 billion, mainly due to transport ($0.3 billion) and charges for the use of intellectual property ($0.1 billion); while sales for travel decreased $0.4 billion.
  • The US trade deficit jumped to $63.6 billion in July of 2020 from a downwardly revised $53.5 billion gap in June and above market forecasts of a USD 58 billion deficit. It is the highest trade gap since July of 2008, reflecting an increase in the goods deficit of $9.3 billion to $80.9 billion and a decrease in the services surplus of $0.8 billion to $17.4 billion, the lowest since 2012. Both exports and imports increased in July but remained below pre-pandemic levels, reflecting the ongoing impact of COVID-19, as many businesses continued to operate at limited capacity or ceased operations completely, and the movement of travellers across borders remained restricted. Exports went up 8.1% to $168.1 billion, boosted by sales of cars, crude oil, semicondutors and diamonds. Imports surged 10.9% to $231.7 billion, mainly due to cars, auto parts, civilian aircrafts, cell phones and finished metal shapes.
  • On Thursday: European stocks ended lower, as the positive reaction to French government’s announcement on unveiling a 100 billion euro stimulus, was offset by worries about the pandemic and the U.S. market sell off. US stocks showed a substantial move back to the downside. with major averages all moving sharply lower. The sell-off on Wall Street largely reflected profit taking, as some traders looked to cash in on the recent strength in the markets. Asian stocks rose broadly although Chinese and Hong Kong markets fell after the United States said it would now require senior Chinese diplomats to get State Department approval before visiting U.S. university campuses or meeting local officials.

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