Weak service sector data reduce rate hike likelihood

Weak ISM report supports US stocks

US stocks advanced on Tuesday after weak US service sector report was deemed as possibly delaying an expected interest rate hike by the Federal Reserve. The dollar weakened. The live dollar index data show the ICE US Dollar index, a measure of the dollar’s strength against a basket of six rival currencies, fell 0.9% to 94.852, largest daily decline in a month. The Dow Jones industrial average rose 0.3% to 18538.12 led by Chevron and Boeing which closed more than 1% higher. Losses in Nike, United Technologies Corporation, Home Depot and General Electric limited the gain in the blue chip index. The S&P 500 closed 0.3% higher as 2186.48 led by energy, utilities and telecom stocks. The Nasdaq index gained 0.5% settling at 5260.08. The Nonmanufacturing Index of the Institute for Supply Management fell to 51.4 in August from 55.5 in July, the slowest pace of growth since 2010. The slowing of economic activity in service sector was another weak report which supported the case of no rate hike at Federal Reserve’s September meeting after weaker than expected jobs report on Friday. Investors continue buying risky stocks despite high stock valuations given the alternative of low yields on safe assets. The slipping of the Fed’s labor-market conditions index to minus 0.7 in August after a positive reading of 1.3 in July, the seventh negative reading in the past eight months, was another negative development for the likelihood of a rate hike soon. Market participants are pricing in a 15% chance of a rate hike at the Fed’s September 20-21 policy meeting, down from 30% before the ISM report on Tuesday, according to the CME Group’s FedWatch tool. Today at 13:00 CET Mortgage applications will be released by the Mortgage Bankers’ Associations in US. At 16:00 CET July Job Openings and Labor Turnover Summary results will be published. At 20:00 CET Federal Reserve Beige Book will be released.

At 16:00 CET the Bank of Canada Interest Rate decision will be released. The Bank is expected to leave the rates unchanged at 0.5%.

Weak ISM data undermine European investors confidence

European stocks ended lower on Tuesday as investor confidence was undermined by weak US services sector data which spurred concerns about slowing growth in world’s biggest economy. The euro and British Pound strengthened against the dollar.
The Stoxx Europe 600 index fell 0.3%. Euro-zone economic data were positive: manufacturing orders in Germany rose 0.2% in July against an expected 0.1 decline; the euro-zone retail PMI climbed to a 10-month high of 51 in August from 48.9 in July; and quarterly economic growth in the euro-zone for the second quarter was confirmed at 0.3%, in line with expectations. Germany’s DAX 30 advanced 0.1% to 10687.14. France’s CAC 40 was down 0.2% and UK’s FTSE 100 fell 0.8%. Today German statistics department reported industrial production in July fell 1.5% over month, instead of expected 0.1% growth. And at 10:30 CET today July Industrial and Manufacturing Production will be released in UK. The tentative outlook is negative for Pound. At 15:15 CET Monetary Policy Committee hearings will start in UK. And at 16:00 CET the GDP in three month ending in August will be published by National Institute of Economic and Social Research in UK.

Asian stocks are mixed as yen strengthens and Beijing vows more fiscal stimulus

Asian stocks are mixed today with Chinese stocks getting a boost early in the session from China's State Council statement it would increase fiscal policy efforts to support the economy. Hong Kong’s Hang Seng index is 0.2% down after four days of gains and Shanghai Composite Index is 0.05% up, while Australia’s All Ordinaries Index is up 0.19%. Nikkei ended 0.4% lower today at 17012.44 as yen strengthened against the dollar after weak ISM report dimmed the chances of a Fed rate hike soon.

Oil futures are rising on production freeze hopes

Oil futures prices are edging higher today after Iran’s Oil Minister Bijan Zangeneh said on Tuesday Iran was prepared to work with Saudi Arabia and Russia to support oil prices as it began to bargain with OPEC on possible exemptions from output limits. Prices ended mixed yesterday. October West Texas Intermediate crude rose 0.9% to settle at $44.83 a barrel on the New York Mercantile Exchange, while November Brent crude fell 0.8% to $47.26 a barrel on Tuesday.

Precious metals edge lower after jumping on weaker dollar

Gold hit a two and half week high $1352.65 today after gaining about 2% yesterday as weak US services sector data strengthened the case for a delay of an interest rate hike. Spot silver is declining after touching an over three-week high of $20.13. Platinum is edging lower after hitting a two-week high of $1105.80.