Scoreboard: At your service

The surging services sector in the US saw the S&P 500 hit a new high, while European stocks were mixed as investors await the ECB’s next move.

The good news is that not only is the US manufacturing sector accelerating, but so is the services sector. That is, according to the ISM non-manufacturing index we saw last night. This rose to 56.3 in May from 55.2 the month prior with business activity, new orders, backlog of orders and employment all higher for the month.

As a standalone, that’s some pretty good data flow -- but it was complemented by another strong jobs showing by the ADP employment report ( 179,000 in May) and an upbeat Beige Book that showed the “economic activity expanded during the current reporting period”.

Bottom line: the US economy is doin’ good.

Equities were generally mixed around zero on both sides of the Atlantic. On Wall Street, the S&P 500 was up 0.2 per cent (1927) -- to a new record! The Dow was 15 points higher (16,737), while the Nasdaq rose 0.4 per cent (4251). By sector, consumer services and financials seem to have outperformed, but there wasn’t too much between the major components. Over in Europe, the Dax was 0.1 per cent higher, the CaC fell 0.1 per cent, and the FTSE100 was off 0.4 per cent.

Rates continued to push higher overnight with the yield on the US 10-year Treasury note up almost 2 bps to 2.603 per cent. The 5-year Treasury yield was then up just under 2 bps to 1.639 per cent, while the 2-year yield is at 0.0.399 per cent. Aussie futures didn’t do much -- the 3s were flat at 97.160 and the 10s were down 1 tick to 96.215.

Forex markets saw the euro push a little higher initially, with the unit up about 30 pips at the high. The offer came on and as I write, the euro is little changed at $US1.3599. The British pound followed a similar path, but ended 20 pips higher at $US1.6739. As for the Australian dollar, it didn’t do much and sits about 15 pips higher at $US0.9278. The US dollar is buying ¥102.7.

Commodities generally didn’t do much, although copper did have a big fall -- down 1.4 per cent, presumably because stronger US and Chinese growth is bad. The story here is that Chinese authorities may clamp down on cheap financing deals that use copper as collateral and in particular deals that use the same stocks of copper for different loans. Elsewhere though, gold was down smalls to $1243, silver was up about 0.1 per cent and in the crude space, Brent fell 0.5 per cent to$108.3, while WTI was 0.2 per cent lower despite the uptick in US growth and a fall in crude oil stocks for the week.

Elsewhere, the US trade deficit came in at $US47.2bn, up from $US44.2bn, on the back of a 1.2 per cent lift in imports, while exports fell 0.2 per cent. In Europe, first-quarter GDP was confirmed at 0.2 per cent for the quarter, or 0.9 per cent annually with modest growth across household spending, government and investment.

Markets today -- the SPI suggests Aussie stocks will trade flat. Otherwise the key data for Australia includes the domestic trade balance at 11.30am (AEST) and then China’s services PMI 15 minutes later. This afternoon we see German factory orders, while eurozone retail sales come this evening -- although the key focus for the market will of course be the European Central Bank meeting. Markets expect the ECB to cut interest rates to 0.1 per cent from 0.25 per cent and perhaps conduct another long-term financing offer or ‘negative’ deposit rates. The Bank of England also meets, although nothing is expected from them. Otherwise, for the US we see the usual weekly jobless claims numbers and a speech from the Fed’s Narayana Kocherlakota.

Have a great day.

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