U.S. Stocks in the Red: Economic Signals, Oil Surge, and Currency Movements

U.S. Stocks in the Red. The last trading day of the week saw all three major U.S. stock indexes finishing in negative territory. The Dow Jones Industrial Average slid by 110 points, the S&P 500 lost ground, and the Nasdaq closed lower by 0.2% and 0.1%, respectively. Traders grappled with the expectation that interest rates would remain elevated for an extended period.

Meanwhile, fresh S&P Global Purchasing Managers’ Index (PMI) data for September portrayed a mixed scenario, with the services sector losing momentum while the decline in factory activity was smaller than anticipated. Amidst this backdrop, we explore the key factors influencing the market’s performance.

Mixed Economic Signals

The S&P Global US Composite PMI for September 2023 came in at 50.1, slightly down from 50.2 in August. This indicates a broad stagnation in activity across the private sector and marks the fourth consecutive month of declining PMI. It signals the weakest overall performance since February.

Service sector growth eased to an eight-month low, while manufacturing output continued to contract due to high-interest rates and persistent inflationary pressure. Total inflows of new business declined the most since December 2022, and outstanding business dropped at the sharpest rate since May 2020. However, the rate of job creation accelerated to its fastest pace since May.

Service Sector Struggles

The S&P Global US Services PMI fell to 50.2 in September 2023 from 50.5 in August, below market expectations of 50.6. This was the slowest rise in business activity in the current eight-month sequence of growth. Service sector firms saw a solid decrease in new business due to pressure on customer purchasing power from high inflation and interest rate hikes.

A renewed fall in service sector new export orders led to another marginal decrease in total foreign client demand. Nevertheless, the pace of increase in staffing numbers accelerated. Service providers were at their least optimistic in 2023 so far, reflecting the strain on disposable incomes.

Manufacturing’s Slow Recovery

The S&P Global US Manufacturing PMI increased to 48.9 in September 2023 from 47.9 in August, slightly beating forecasts. However, it continued to point to another, albeit smaller, deterioration in manufacturing performance. Contractions in output and new orders softened.

Firms reduced their purchasing activity sharply again due to sufficient stocks of inputs and finished items, alongside subdued demand. The pace of increase in staffing numbers accelerated, and input price inflation quickened amid higher fuel expenses. However, output prices rose only marginally.

Oil Prices Surge

WTI crude futures rose above $91 per barrel, nearing ten-month highs, on Friday. Concerns mounted over a Russian ban on fuel exports, which could further tighten global oil supply. Russia announced a temporary restriction on gasoline and diesel exports to stabilize domestic fuel prices. This decision came after exports of diesel from the country fell by nearly a third in the first two weeks of September. Additionally, U.S. crude inventories fell by 2.135 million barrels, with stocks at Cushing reaching their lowest levels since July 2022.

Currency Movements

The dollar index, though showing some retracement on Friday, has been on a ten-week strengthening streak. The Federal Reserve’s signal of a potential rate hike has bolstered the dollar’s position. Meanwhile, the yen weakened to below 148 per dollar, the lowest level since early November, after the Bank of Japan (BoJ) maintained its key short-term interest rate at -0.1%. The pound also fell to $1.227, the lowest level since March, following the Bank of England’s decision to keep rates unchanged, contrary to expectations of a rate hike.

Currency Markets

Among the top currency gainers are the New Zealand Dollar, Swedish Krona, and Australian Dollar, while the Japanese Yen, Russian Ruble, and British Pound are among the biggest losers.

Cryptocurrency Market

In the cryptocurrency market, Ether experienced a positive trend with gains, while Bitcoin encountered a slight setback with a decrease.

Looking Ahead

After a week filled with central bank meetings, the focus is set to shift to macroeconomic data. Key highlights in the United States include the PCE Price Index, personal income and spending data, durable goods orders, the final reading of Q2 GDP growth rate, and pending and new home sales.

In Europe, attention will be on September inflation rates for various countries, Ifo Business Climate, GFK Consumer Confidence, and retail sales figures for Germany, along with industrial production, retail sales, the unemployment rate, consumer confidence, and the BoJ Monetary Policy Meeting Minutes in Japan. These economic indicators will be closely watched for insights into the evolving economic landscape and their potential impact on financial markets.