Daily Commentary BY THE CURVE TEAM –

Slowdown Spreading

4th of October, 2019

Data from around the globe continues to point to a broad slowdown in activity raising the prospect of further monetary stimulus.

The slowdown in activity that has been present in the global manufacturing sector for some time is spreading. Service PMI’s for a number of key economies were released overnight with a clear trend emerging. The expansion of service sectors in a number of European counties continue to slow with the UK and Germany actually going backwards.

In the US, the big release was the ISM non-manufacturing index which fell heavily from 56.4 to 52.5. While it is still above the key 50 level, indicating the service sector is still expanding, key subcomponents tell a more sobering picture.

Outstanding business continues to decline while new export business is showing almost no growth. Growth in new domestic business also continues to slow. Importantly the employment index continues to slide, dropping to 50.1, pointing to little expansion over the months ahead.

Many hope that a de-escalation in political uncertainty will pave the way for confidence to build and bring with it increase economic activity. What is becoming an increasingly likely scenario is that we are seeing the global economy choking on debt saturation. It means that the current slowdown is likely to persist for some time.

Expectations of further monetary support continue to rise as the data deteriorates. They Fed is looking increasingly likely to cut again at the end of the month. That is one reason why the RBA expected to cut the cash rate this month, to try and get in front of the curve after falling behind it earlier this year.

A lot will hinge on the incoming data. Today we get the latest retail sales data while in the US the all important non-farm payrolls will be released.

Matthew Dunshea

Client Relationship Manager