Daily Market Color

Manufacturing Data Sinks Risk Assets with Jobs Report on the Horizon

With nonfarm payrolls on deck for tomorrow, markets this morning received an assortment of economic data that showed mixed results.  Nonfarm productivity reported a -0.6% q/q movement that matched the consensus estimate, but marked the third quarter in a row that productivity has declined.  Initial jobless claims reaffirmed a healthy labor market with a mild 2,000 increase from last week to 263k, in-line with expectations and remaining at historical lows.  The news initially kicked off a move up in rates, but then bonds rallied back as soon as weak manufacturing data came across the ticker.  The ISM Manufacturing Index registered a 49.4 level, the first sub-50 reading since February.  Surveys had forecasted the figure to be in line with last month’s number of 52.6, but a heavy fall in new orders, inventories, and backlog orders pushed the index down and subsequently, the majority of U.S. risk assets.  Despite today’s data, the August employment report tomorrow is likely to provide the strongest indication of whether a rate hike (or two) for 2016 will remain on the table.  The forecast for nonfarm payrolls sits at +180k, 75k below July’s figure.  Historically, August’s payrolls have disappointed, missing expectations in nine of the past twelve years.           

A number of manufacturing PMI were reported in other countries today, with Britain reporting the highest mark.  U.K. manufacturing PMI came in at 53.3 for August, five points higher than July and well above expectations of 49.  The pound jumped more than 1% immediately after markets received the news.  In contrast, the broad Euro region PMI felt the effects of a slowdown in order growth as it fell to a three-month low of 51.7.  European equity markets on the whole finished down for the day, weighed down in part by the disappointing U.S. manufacturing data.  In Asia, China reported its Manufacturing PMI at 50.4 for the month. The August level exceeded estimates of 49.9 and recorded the highest indication in nearly two years.  Nonetheless it was not enough to drive Asian stock indexes into positive territory.
Currently, all three major U.S. stock indexes are trading near flat for the day while Treasury yields and swap rates are down 1-4 bps across the curve.  Oil prices continue to tumble as both Brent and WTI crude are down more than 2.75% on the day. 


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