Better PMI, Worse ADP
Yesterday’s ISM Purchasing Managers’ Index (PMI) shows a significant improvement from June. The PMI offers some insight into how a corporation’s outlook changes over time based off their purchasing decisions offering valuable information, especially during periods of uncertainty. The increase from 55.7 to 58.5 index points is considered a positive result and supports the assumption that the US economy will continue to grow. The ADP employment change figures on the other hand were underwhelming, although it’s entirely possible that analysts may have simply been overestimated the expanding labor market. Compared to July’s 217 thousand increase, August saw a rise of ‘only’ 162 thousand. Although it’s not as impressive, it’s still a respectable amount considering the average ADP between 2001 and 2018 was 72 thousand. The only potential cause for concern is that this figure is the lowest since October 2017.
Tech Sector at the Center of Attention
For the past 3 days, the NASDAQ has been on a sharp decline. The popularity of social media company stocks has taken a hit from the recent controversies surrounding Facebook, while chip manufacturers suffered from declining sales forecasts. The result was another day in the negative for the NASDAQ, losing 1% by the end of the day. Aside issues in the tech sector, the US is till embroiled in a trade war and the possibility of peripheral markets collapsing still looms on the horizon, despite the dollar’s recent weakening stabilizing them for now. In Asia the Nikkei’s 0.8% decline can be attributed to how heavily the tech sector features in the index. Meanwhile the Shanghai Composite was the only major Asian index that was in the positive with a humble 0.3% increase.
NASDAQ
How long can it last? This is the question on the mind of every investor looking at the NASDAQ charts. Starting from 4000 points in February 2016, the index now rose to near 7700, almost doubling in value over two and a half years. Even with this impressive increase, the NASDAQ’s components still have room for growth, especially when it comes to the tech sector. The most recent controversies concern regulation of the industry or lack thereof. The handling of personal data and tracking of online activity are a question that seem like a teething problem for the industry more than anything, so resolving the issue may be required to recover consumer trust.
On the technical side, there have not been any major changes in the 100- and 200-period since 2016 as the two have been moving parallel for most of this time span. The main support line for the asset is the 100-day simple moving average, a price level only breached on three occasions. The second dynamic support line is the 200-day moving average, which is even more persistent than the first, having prevented price from going below it for more than two years and counting. Indices contain an entire portfolio of stocks, making them inherently less risky and many traders take advantage of it by using the intersection of the two moving averages as entry points.
GBPUSD
Yesterday’s Automatic Data Processing Inc. figures knocked the US dollar down a peg and many welcomed it. The data’s release was followed by a brief spike in USD sales. Although highly volatile, it was only for a brief period and price still stayed within its established limits. Official unemployment figures will be published in today’s Non Farm Payrolls (NFP). Market expectations are high, predicting a result of over 200 thousand, following last month’s 157 thousand figure. Looking at the previously published ADP figures, it’s entirely possible that the NFP’s results turn out equally underwhelming, which could deal another, even larger blow to the US dollar.
The Cable’s current 1.3 exchange rate is the result of the dollar’s systematic strengthening over the course of this year. The GBP’s weakening fundamentals have diminished the number of people willing to hold their funds and savings in pounds and the Bank of England’s recent interest rate hike did not help the situation. Demand for the pound is dropping due to the number of corporations and member of the workforce leaving the UK due to Brexit. Even a potentially poor NFP report could only increase the pound’s value temporarily at best. For the trend to shift, major changes are necessary such as a compromise between the UK and the EU for example. The GDPUSD has a tendency for large price swings, so it’s entirely possible for price to rise above 1.3 when NFP report breaks. The closest relevant resistance line is at 1.3045.
Sincerely,
Laszlo | Market Analyst
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