The Institute for Supply Management has just given us a clear picture of the state of the U.S. industry. It is falling into a technical recession as evidenced by the ISM manufacturing index which tumbled to 47.8 in September, contracting for the second straight month below economists’ expectations of 50.1. To make things worse, the ISM services index dropped to 52.6 (3-year low) from 56.4 in August, thereby increasing concerns about a sustained slowdown in the economy.
Investors logically moved to safe-haven assets following this disappointing macro data, with the 10-Year Treasury yield falling from 1.69% to 1.52% over the week. Gold futures simultaneously rose 0.47% to $1,506.20 a troy ounce. Emerging debt (+1% in USD) and U.S. investment grade corporate bonds fared well too (+0.67%) in contrast with U.S. high-yield securities (-0.34%). Stocks nosedived in a first time but partly recovered from their heavy losses at the end of the week, as bets of interest rate cuts by the Fed soared and the moderate jobs growth in September, that saw the unemployment rate hitting a milestone low, offered some relief. Consumer spending should remain on the positive side for some time.
Despite this rebound, the S&P500 ended the week down 0.33%. It was an even tougher period for European indices (MSCI EMU and EUROSTOXX50 down 2.46% and 2.80% respectively). Though the prolonged trade war has already hammered global growth, especially in Europe, the U.S. Trade Representative’s Office stirred up new tensions, after announcing tariffs from 10% to 25% on hundreds of European products. European Commissioner for Trade Cecilia Malmstrom said that new U.S. tariffs would be “short-sighted and counterproductive” and left the door open to the EU levying retaliatory duties.
Among the S&P sectors, information technology was clearly the best performer of the week (+1.11%) led mostly by the strength in Apple (+3.74% WTD) as JPMorgan analyst Samik Chatterjee boosted his price target on the stock from $243 to $265, putting forward better-than-expected sales of the new iPhone 11. Defensive sectors also finished in positive territory (consumer staples: +0.56%, real estate: +0.37%, utilities: +0.23%).
By contrast, energy (-3.79% WTD in the wake of WTI crude oil futures which lost 5.54% to $52.81 a barrel), materials (-2.52%), industrials (-2.39%) and financials (-2.22%) lagged behind.
Find the full report here: https://www.trackinsight.com/weekly-flow-report/2019-10-04/global – Week from 30 September to 6 October 2019