Soft data does little to dampen stocks advance; Big Oil inventory build


  • ADP employment change misses forecasts

  • US ISM services index drops to 17-month low

  • UK Services PMI hits lowest since 2016

  • Despite this US stocks reach new 2019 peaks

  • Big inventory build but Oil still near to recent highs


It’s a pretty big week on the economic release front for the US and the markets may be feeling a little less sure of themselves heading into Friday’s non-farm payrolls main event after a private sector precursor has just come in at it lowest level in almost 18 months. You have to go back to the November 2017 release to find an ADP employment change lower than this afternoon’s +129k, which was also well below the consensus forecast of +184k. There was an upward revision to the prior month of 14k which now stands at 197k but there’s no escaping the fact that this is a potential warning sign.


The US ISM non-manufacturing index dropped from 59.7 to 56.1 points, way below the consensus of 58 points. This is the lowest level in 17 months and could suggest that positive effects of tax cuts are slowly waning. The index has been dragged by new order and business activity components. The US dollar is trading lower on the day but the bulk of these losses came before the weak US data, and in fact the buck is little changed since.


According to a widely viewed survey, activity in the UK services sector has fallen to its lowest level in over 2 ½ years, with the PMI for March coming in at 48.9. This is a notable miss on the consensus expectation and comes just a day after the construction sector equivalent showed a second consecutive sub 50 print, marking contraction territory. The manufacturing PMI for last month showed a big beat, but once record levels of stockpiling is taken into account this also looks not too healthy. These surveys are seen as key leading indicators and taken together they suggest that the UK economy is slowing with Brexit uncertainty clearly taking its toll. The pound remains well supported despite the awful data, with the market far more interested in the latest Brexit developments than economic releases at present.


While the US500 and US100 have both made new YTD peaks this afternoon, the US30 has been lagging behind its peers in recent months. Having said that the market today has already taken out recent highs to trade at levels not seen since early October. Price is back within 700 points or roughly 2.5% of its all-time high and if it gains traction above 26210 then a retest could well occur in the not too distant future.


The weekly crude oil inventory release has shown a large build at the same time as US production has surged up to a new record high, but despite this the crude oil markets are holding up fairly well. A print of +7.2M for the latest headline inventory number is well above the -0.8M expected and marks a second consecutive rise after a reading of +2.8M last time out. The reading was also above last night’s API figure which showed a rise of 3.0M. Oil reacted negatively to the inventory release, with price falling around 40 ticks in the  minute that followed. There has so far been a lack of follow through however with the low of 68.98 not breached since. Longer term the outlook remains positive for Brent crude Oil with price still in breakout territory above 63.75.


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