Familiar holding pattern ahead of data

Summary

Global shares are back to this year’s normal: Wall Street is set to bounce earlier and further than indices in Europe and pretty much everywhere else.

Situation normalised

European and U.S. stock markets are giving up chasing their tails lower despite another deep dive into the red by Asia-Pacific shares, particularly on the key Shanghai-Shenzhen exchange. This lowers the chances of an ‘upgrade’ of the week’s selling from an ‘ordinary’ consolidation to something more serious. In turn, a U.S. stock market catch-down with indices in Europe, broad swathes of the Asia-Pacific, Latin America, and other regions is even more distant. In a year that many stock market investors may grade between ‘quite bad’ and ‘terrible’, modest outperformance by U.S. shares (S&P 500 is up 7.5% in 2018 compared to, say, MSCI’s main Asia Pacific index, which is down 8.5%) positive feedback loops should soon buff Wall Street’s attractions relative to elsewhere even further.

FTSE lacklustre despite metals rebound

Earlier this week we noted that evidence—for those who still need it—keeps streaming in to confirm that pain from trade disputes and dollar financing costs is not evenly distributed. So, the easiest way to explain away Thursday’s shallow mixture of red and green across European indices is that opportunities for more insight—NFP, the end of ‘consultation’ ahead of another possible blast of tariffs—is scheduled late in the week. Furthermore, a spate of FTSE ex-dividends offsets reflexive mining stock gains as iron ore advances from a bottom at the end of last month and copper sees its first three-day rise since 27^th August. As for European markets, they would be even more firmly on the backfoot without an anomalous looking Construction and Building Materials sector rise. It is largely down to Melrose’s 6% jump after it declared its GKN acquisition to be free of nasties. Benign news for sure, but investors should note the tenuous link to the materials sector. And whilst it also provides a more appropriate uptick for STOXX’s Industrial Goods and Services Gauge, the broader STOXX aggregation is weak. All eyes are on Washington and are awaiting U.S. jobs data.

Must watch: ISM PMIs

ADP’s private payrolls take just posted a big miss of 163,000 against 190,000 expected after July’s 219,000. The very poor correlation between the company’s version and the official outcome is well known, hence the release had marginal—though appropriately negative—dollar impact. ISM’s services PMI barrage (15.00 BST) will, as ever, be more pertinent. Consensus looks for 56.8 compared to 55.7 for the headline. My provider doesn’t offer insight into the most-wanted gauge - the employment index. It was at 56.1 in July, up from 53.1 in June.  Progress of almost any magnitude this time round will seal expectations for an on-target 191,000 payrolls rise. It is in fact the ISM jobs data that could fire up another upward dollar grind this week, ready for an extension on Friday if payrolls and wages are strong. DXY is down 0.2% on the day as I write at 94.989, up 0.5% from 28^th August’s 94.434 swing low that confirmed the down move from the middle of the month was just a consolidation. The ISM service sector employment index is only a somewhat more reliable NFP precursor but could kick off a bigger dollar setback if it misses.