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US Consumer Sentiment is Down in the Doldrums

According to the Conference Board, sentiment fell -11.3 points from 125.1 to 113.80 during its worst monthly drop since April 2020. This also places it in line with a particularly weak read from the University of Michigan which saw sentiment plunge at its second fastest rate since 2013.

Given the Fed refrained from presenting a plan to taper their QE program at this year’s Jackson Hole Symposium, it could leave the US dollar vulnerable to further losses if key employment data this week also misses expectations.

Key employment data to watch for Fed hawks is the ADP Non-Farm employment change at 22:15 AEST (13:15 BST) and of course Nonfarm payroll on Friday at 22:30 AEST (13:30 BST).

US equity markets remain buoyant

US indices remained supported just off their record highs despite weaker consumer sentiment. And if traders expect it to delay Fed tightening, it makes sese that the broader market remains firm as ‘easy money’ is expected to remain in the financial system for longer to prop up markets. The S&P 500 (US500) was effectively flat by yesterday’s closed and produced a Doji at its record highs, warning of a potential retracement. Yet prices are higher overnight with support sitting at 4525 on the hourly chart. Resistance is around 4536 from the weekly R1 pivot.

China’s Manufacturing PMI contracts

The final read of China’s Markit manufacturing PMI has been revised lower. At 49.2 it shows the industry contracted in August for the first time since April 2020, although it’s the fastest pace of contraction since February 2020. With COVID cases continuing to rise whilst Beijing trying to restrict their way to a “zero case” policy, it currently suggests we would expect the world’s second largest economy to slow down further this month.

Not that equity markets took much notice. The China A50 index is a top performer overnight, rising 1.3% whilst the CSI300 is around 0.2% higher after a choppy day’s trade. Hong Kong listed NetEase rose to a 4-week high on strong Q2 result. However, the more likely reason for the bounce for equity markets is the expectation for Beijing to provide yet more stimulus to fend off a downturn.

Australia’s GDP surprises to the upside (kind of)

Markets were braced for a weak set of growth data for Q2. And, whilst they got it, it could have been worse. GDP rose 0.7% in Q2 compared with 0.5% forecast, but markedly lower than the 1.8% forecast. Whilst retail sales had slumped last week, company profits exceeded expectations and private consumption actually rose. So is the panic over? No, far from it. The baulk of the extended lockdowns in NSW and VIC will show up in the Q3 print and its plausible we may even see growth contract. Therefore, more timely indicators such as PMI’s, exports, retail sales and employment are likely to help us decide the likelihood of a GDP contraction before the data is actually released.