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Stocks slip after BofE keeps rates on hold

Stocks slip after BofE keeps rates on hold 150 150 Realm

Stocks retraced this morning after the Bank of England kept rates at an all-time low of 0.1%. The BofE said it now expects a less severe decline for the economy than originally anticipated but that recovery time would be longer than previously predicted. Markets are also monitoring talks in the US over a new stimulus package but an agreement was not reached again on Wednesday.

 

Global Macro

  • The ISM Non-Manufacturing PMI for the US jumped to 58.1 in July 2020 from 57.1 in the previous month and above market expectations of 55.0. The latest reading pointed to the steepest month of expansion in the service sector since February 2019 as the economy recovers from the coronavirus hit. Business activity grew the most since January 2004 (67.2 vs 66.0 in June) and new orders rose the most on record (67.7 vs 61.6), while the rate of job shedding accelerated (42.1 vs 43.1).
  • The IHS Markit US Services PMI was revised higher to 50.0 in July 2020 from a preliminary estimate of 49.6 and compared to June’s final reading of 47.9. The latest PMI figure signalled a stabilization in service sector business activity as economy continued to reopen following coronavirus-induced lockdowns in prior months. Employment increased for the first time since February, while new orders declined at a slightly quicker pace as domestic and foreign client demand remained muted. Backlogs of work rose marginally, but at the fastest rate for a year. On the price front, input costs and output charges rose at sharper rates as there were some reports of PPE-related costs rising, and supplier price hikes were partially passed on to customers. Finally, business confidence improved to the strongest since March 2019.
  • The IHS Markit US Composite PMI was revised higher to 50.3 in July of 2020 from a preliminary reading of 50 and 47.9 in the previous month. The latest reading signalled a fractional expansion in private sector business activity, but the first instance of growth since January. The upturn was largely driven by the resumption of business at manufacturers and service providers, but new business continued to fall. The decrease in new orders quickened slightly despite an expansion in manufacturing client demand. Private sector firms increased their workforce numbers, largely stemmed from an uptick in service sector staffing numbers as manufacturers reported a further fall.
  • Imports to the United States increased USD 9.5 billion from the previous month to USD 208.9 billion in June of 2020. Goods purchases rose USD 9 billion, led by automotive vehicles, parts, and engines (up USD 9.7 billion), in particular passenger cars, automotive parts and accessories and trucks, buses, and special purpose vehicles. Also, imports of consumer goods were uo USD 4.7 billion, due to Cell phones and other household goods; Gem diamonds; Cotton apparel and household goods and Artwork and other collectibles. Meanwhile, imports rose for capital goods (up USD 2.2 billion) while those of industrial supplies and materials decreased USD 8.3 billion. Imports of services increased USD 0.5 billion.
  • The IHS Markit/CIPS UK Composite PMI came in at 57.0 in July 2020, little-changed from a preliminary estimate of 57.1 and well above June’s reading of 47.7, signalling the fastest pace of expansion since June 2015. Manufacturing output growth was the strongest since November 2017 and service sector activity expanded by the most for five years.
  • On Wednesday: European stocks closed higher as investors picked up stocks, reacting positively to some earnings announcements and on optimism the U.S. lawmakers will eventually agree on a stimulus package while somewhat disappointing eurozone economic data limited markets’ gains. US stocks rose after White House negotiators said they aim to reach a deal on a new coronavirus-relief package by the end of the week. In a sign of optimism about prospects for the economy, cyclical sectors—such as industrials, materials and financials—led the S&P 500, a departure from the technology group’s outperformance this year. Asian stocks turned in a mixed performance as investors kept a watchful eye on the upcoming U.S. job report as well as negotiations on a U.S. Covid-19 relief bill. Underlying sentiment turned cautious after reports suggested that the U.S. and China plan to review the implementation of their phase one trade deal in mid-August.

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