Pound surges to 7-month highs; Stocks look to regain footing

Summary:

• GBPUSD moves above $1.31 to highest level since May

• US indices in the green as they look to recover

• Top 3 indices charts of the week

• ISM services and ADP miss

• Oil gains over 3% as DOE shows large drawdown

The pound has made a break higher above the $1.31 handle today, running up to levels not seen since May. The lead for the Conservatives seems to be holding at around 10 percentage points and unless this narrows in the next week then it is looking increasingly likely that we will get a Tory majority. The move can be put into context better from a longer-term perspective with the breakout seemingly ending a 7-week consolidation and seeing price move up to a 7-month high. Prior resistance around 1.3010 can now be viewed as possible support. 

 There’s been an attempt at a recovery in equities in recent trade following a couple of down days for US benchmarks to start the week. The catalyst behind both the declines and the subsequent bounce comes from a familiar source, with trade developments still very much in the driving seat. The gains this morning came after a Bloomberg report that despite the heated rhetoric the US and China are getting closer to a deal and the US500 is now trading a little over 40 handles above Tuesday’s low of 3070. 

Our latest market alert focuses on indices with the top 3 charts of the week. 

It’s a pretty big week for US data with the ISM manufacturing PMI miss on Monday contributing to the sell-off in stocks and in the past hour there’s been a further warning sign from the world’s largest economy after the release of some private payroll data. The ADP employment change fell to 67k from 121k prior (revised down by 4k), well below the consensus forecast of 137k. This is the worst reading since the June release, and if you ignore that aberration then you have to go all the way back to June 2011 to find a worse number.

For the 3rd time this week a keenly viewed US data release has come in worse than expected with the ISM non-manufacturing index falling to 53.9 from 54.7. This is a bigger drop than the consensus forecast which expected a decline to 54.5. However, a closer inspection of the sub-components reveals that the report overall wasn’t quite as bad as the headline appears.

• New orders: 57.1 vs 55.6 prior

• Prices paid: 58.5 vs 56.6 prior    

• Employment 55.5 vs 53.7 prior

There’s been strong gains seen in the crude oil benchmarks this afternoon with both Brent (Oil on xStation) and WTI surging higher by more than 3%. The rally comes just one day ahead of the Saudi Aramco IPO and also in a week where the Oil price will attract a greater level of scrutiny given that OPEC members are meeting in Vienna. 

Normally, the DOE inventory data is the main event of the week, but given the proximity to the OPEC announcement (expected Friday) it could be seen to take on a little less importance this time out. Anyway, the data is worth noting as follows:

• EIA inventories: -4.9M vs -1.6M exp. +1.6M prior. API: -3.7M

• Gasoline inventories: +1.8M vs +5.1M prior

• Distillates: +0.3M vs +0.7M prior