US PMI data yesterday may have been strong but most stock market indices are refusing to believe that their summer rallies do not already reflect all of the economic improvement announced to date. The S&P has rallied a huge 47% from its March suggesting that some profit-taking this month is unsurprising. However, the term ''v-shaped'' recovery has recently slipped back into market rhetoric (though not in reference to the UK economy). Most commentators wouldn't have dared propose such a scenario just two or three months ago. Given that confidence over the global economic outlook has surprised on the upside over recent months, the current bout of profit-taking in stocks may prepare the market for another rally if the economic data continues to impress. US payroll data due Friday could set the tone for the coming weeks.
Today's US data and FOMC minutes may also prove to be of note.
Far stronger than expected Australian Q2 data released overnight (+0.6% q/q) resulted in a surge in AUD/USD to a high just short of 0.8450. The AUD, however, was fighting against a market mood dominated by the poor tone in stock markets. The preference for safe haven assets resulted in the AUD coming off its highs early in the European session and pushing down to the USD0.8280 area. Cable trod a similar path to AUD/USD this morning failing to hold early gains and falling to just below USD1.6120 before buyers emerged. There was no key UK data this morning though the PMI construction index edged lower in August to 47.7 reflecting a moderate, but smaller than expected, improvement and leaving the UK economy marred by the impression that its upturn is lagging behind that of many other nations.
Eurozone data this morning brought confirmation of a -0.1% q/q fall in Q2 GDP across the region and created little market reaction. The breakdown showed a better than expected +0.2% q/q rise in household consumption following a -0.5% q/q contraction in Q1 and a better performance from trade. On the margin the data is good news with respect sustainability of the economic improvement in the area. The EUR also fell back against the USD after an initial push higher reflecting the preference for safe haven assets. Unsurprisingly given this theme the yen has been a benefactor of the morning's trading activity rising vs the USD, the EUR and the pound.
US ADP employment data for Aug will provide a focus this afternoon, factory orders and the minutes of the Aug 12 FOMC meeting will also be closely analysed.
