A more measured night.  Shanghai finished down smalls yesterday (-0.2%) ahead of a four day long weekend to mark China’s victory in WWII and while European bourses had something of a see-saw night closed higher.  (The US also has a long weekend coming up with Labor Day on Monday.) So the Dow and the S&P have closed higher on the day, both up 1.8%, but still within the lower ranges set over the past 10 days or so.  The AUD did test its sub 70 cent level again early in the London session with some selling seen against the Euro; carry trade unwinds perhaps.  But relative market stability in the overnight session saw Aussie clamber back above 0.70, to around its pre-GDP level, and where it made its way back to within an hour or two after GDP after the initial sticker shock of a low print.

Data did not play a big part in market direction last night, not that the prints were particularly compelling or enlightening.  It was the general tone of equities, and on that score, the market was relatively settled.  All tallied up, the Bloomberg US dollar index made some net gains, more notably against EUR, JPY and CAD.  Oil continued its whippy story, WTI and Brent up 2% or so, the NOK and RUB currency beneficiaries on the day; the CAD was little changed underperforming after its second negative quarterly GDP print the night before.

The main US data releases were the ADP employment report, factory orders and the Fed’s Beige book.  ADP has not been a reliable guide to payrolls and the market knows that.  In the event, it was only shy of 200K expectations at 190K.  Factory orders printed low – a surprise after a good lead in from durable goods orders – with consumer non-durable orders down for once, likely monthly noise.  The Fed’s Beige book reported economic activity continued expanding with again nearly all Fed Districts reporting growth was either “moderate” or modest”, whatever the difference is between those two are for you wordsmiths out there.  The Beige Book also reported that wages were picking up slightly in selected industries and occupations with input and selling prices stable or up only slightly.  That sounds less than moderate or modest.  Tomorrow night’s payrolls is expected to reveal no trend change in flat average earnings growth.

Coming up today/tonight

AU Retail trade and international trade will come under the spotlight today, both likely to occupy some attention for different reasons.  Retail sales is a timely update on consumer spending and has been more upbeat than yesterday’s consumer spending in the GDP report.  (Retail volumes are just over 30% of consumption.)  Recent anecdotes from retailers have been mixed to OK, some doing well, others struggling amid signs that the supermarket wars continue to rage on.  Some continuation in growth looks on the cards with measures of consumer sentiment more stable of late, employment conditions somewhat more favourable.  The NAB Online Retail Sales index dropped 1.4% in July but that was only partial payback after June’s 2.3% jump and the NAB Survey pointed to growth in the vicinity of 0.5%, NAB’s forecast.  The market consensus is +0.4%.  The international trade report is a nice prism to view the trade impact of China on the Australian economy.  We look for an increase in the deficit from $2.93bn to $3.6bn (market: $3.16bn) from softer iron ore port shipments and commodity price softness.

EC retail sales and the ECB meeting are the main event focal points in the London session though neither is likely to create much in the way of fireworks.  In the US there is US jobless claims and the US July trade report, the market sensitive to any sign that dollar strength is weighing on US trade performance, evident the night before in the ISM Manufacturing report export softness.  Also due is the ISM non-manufacturing PMI that was a strong 60.3 in July and is expected to be 58.2, with particular focus on the employment component ahead of payrolls.

Overnight

Equities higher overnight : Eurostoxx 600 +0.3%, Dax +0.3%, CAC +0.3%, FTSE +0.4%.  Dow +293 points to 16,351, +1.8%, S&P 500 +1.8%, Nasdaq +1.8%, VIX 26.09 -16.9%.  Mumbai -0.2%, Nikkei 225 +2.5% and ASX 200 +0.1%; ASX SPI futures this morning +0.6%.  US bond yields: 2s at 0.71% (0), 10s at 2.18% (+3).  WTI oil at $46.05 (+1.4%), Brent at $50.47 (+1.8%), Malaysian Tapis (yesterday) $49.47 (-6.6%).  Gold at $1133.20/oz (-0.6%). Base metals: LME copper +1.0%, nickel +1.1%, aluminium -0.2%. Iron ore $56.7/t +0.2% Chinese steel rebar futures -0.1%. Soft commodities spot futures: wheat -0.9%, sugar +0.2%, cotton -0.3%, coffee -2.0%.  Euro Dec 14 CO2 emissions at €8.13/t (1.4%). The AUD/USD’s range overnight 0.6984-0.7049; indicative range today 0.7010-0.7075 into retail trade; the AUD/USD is 0.7040 now

US ADP Employment (Aug) 190K (L: 185K, revised to 177K; E: 200K); Non-farm productivity (Q2, final) +3.3% (L: 1.3%; E: 2.8%); Factory orders (Jul) 0.4% (L: 1.8%, revised to 2.2%; E: 0.9%); ISM New York (Aug) 51.1 (L: 68.8)

For full analysis, download report:

• Markets Today: 3 September 2015 (PDF, 316 KB)

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