With just a couple more days left in Wall Street's vacation season and the Big Kahuna of economic reports on tap for tomorrow, it would be easy to dismiss today's early news. However, there are several items worthy of note on this first day of September that could help shape traders' thinking before the game resumes again in earnest next week.
First up is the fact that the U.K. Manufacturing PMI once again failed to reflect the death and destruction of the British economy that the bears have been calling for. The index, which is designed to indicate the state of the manufacturing sector surprised to the upside today, coming in at a healthy reading of 53.3, which was well above expectations for a reading of 49.9 as well as July's 48.3. Recall that readings above 50 indicate expansion in the sector while readings below suggest contraction.
And with Europe's read at 51.7, it is hard to argue that the BREXIT is causing things to fall apart at the seams. And before we leave the subject, we should also note that China's official Manufacturing PMI also surprised to the upside overnight, coming in at the highest level in almost two years.
Finishing up on the economic front, note that we will get both the PMI and ISM reports for U.S. manufacturing as well as reports from the automakers on sales from August later this morning.
Next up this morning is the topic of the Fed and interest rates. Former bond-king Bill Gross has weighed in on the subject, suggesting that he sees two rate hikes between now and March of next year. The key here is this is about twice the expectations priced into the futures market at the present time. For example, according to Bloomberg, the odds of a rate hike in September currently stand at 36% and you have to go all the way out to the end of 2017 before the odds move above 50%.
So, with multiple Fed Governors talking openly about rate hikes recently, the takeaway would appear to be that markets need to reset the expectations for Fed moves in the coming months.
Current Market Drivers
We strive to identify the driving forces behind the market action on a daily basis. The thinking is that if we can both identify and understand why stocks are doing what they are doing on a short-term basis; we are not likely to be surprised/blind-sided by a big move. Listed below are what we believe to be the driving forces of the current market (Listed in order of importance).
1. The State of Global Central Bank Policies
2. The State of U.S. Economic Growth
3. The State of the U.S. Dollar
Thought For The Day:
You cannot prevent the birds of sorrow from flying over your head, but you can prevent them from building nests in your hair -Chinese Proverb
Wishing you green screens and all the best for a great day,
David D. Moenning
Chief Investment Officer
Sowell Management Services
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