Stocks reverse after bright start; Manufacturing PMIs in focus

Summary:

• Stocks pare early gains after Trump tariff tweet

• European markets tank 

• ISM miss sends Gold higher

• UK data beats estimates but remains soft

Equities began the new week on the front foot with indices around the globe rising after a solid read on Chinese manufacturing was released not long after the markets opened, but this optimism has subsided in recent trade with US benchmarks trading back to little changed ahead of the opening bell. The reason behind this reversal comes from a pretty familiar source with a Trump tweet appearing to be the catalyst. The US president took to Twitter to announce metal tariffs on Brazil and Argentina, and while this is not as negative for sentiment as a similar move against China would be, it is a reminder that the protectionist policies are unlikely to be abandoned anytime soon.  

European bourses were soaring higher in the morning in the aftermath of stronger than expected macroeconomic data but this mood was quickly soured by president Donald Trump who lashed out at Brazil and Argentina accusing them of currency manipulation and pledged to restore tariffs on steel and aluminum on those countries. Trump also praised China tariffs effectively dampening trade deal hopes. That means DE30 once again failed to successfully break the 13300 resistance and has now taken out the 13000 handle to the downside and is trading below last week’s lows. 

On a day dominated by manufacturing PMIs, arguably the biggest of them all has shown the worst reading with the ISM data for November failing to show a recovery that had been hoped for. 

• ISM Manufacturing PMI: 48.1 vs 49.2 exp. 48.3 prior

• Employment: 46.6 vs 48.3 exp. 47.7 prior

• New orders: 47.2 vs 49.1 prior

The headline data extends the run to 5 consecutive misses and also see the index remain firmly below the 50.0 handle which denotes expansion/contraction for the 4th month in a row. In the immediate reaction US yields have tumbled along with the US dollar and stocks while Gold has jumped higher.

The latest read on the UK manufacturing sector has come in better than expected, with a widely followed gauge of activity topping estimates for the 3rd month in a row. However, this is largely due to pessimistic forecasts and the PMI remains in contractionary territory for the 7th consecutive month. Given these conflicting trends, quite different messages can be taken from the data but overall it is probably fair to say that while there has been an improvement in recent months, the big picture still looks pretty bleak.