Dow Slides by Over 100 Points

Daily Analysis - 06/12/2017

Equity Benchmark Clocks First 3-Day Losing Streak Since September

US equities finished lower on Tuesday, with the Dow Jones Industrial Average losing ground for the third straight session, as gains in technology stocks failed to offset broader weakness in the market. Analysts on Wall Street attributed the recent weakness to investors rotating portfolios into sectors that are likely to benefit from the looming overhaul in the corporate tax system.

US Trade Deficit Scales to Widest Since January

Tuesday saw the release of a slew of tepid macroeconomic data points that further dented investor sentiment. The US trade gap grew more than estimated in October, roaring to a nine-month high as higher oil prices inflated the import bill. Figures published by the Commerce Department showed that the trade shortfall widened 8.60% to -$48.70 billion compared to an upwardly revised -$44.90 billion gap reported in September. Economists surveyed by Reuters had anticipated the deficit ballooning to -$47.50 billion. Separate numbers from the Institute of Supply Management displayed a deceleration in the US services sector. The ISM’s widely-followed Non-Manufacturing Purchasing Managers’ Index declined to 57.4 in November from the 60.1 reported in October, printing below analyst forecasts anticipating a drop to 59.0 last month. Dow futures fell more than -100 points to close Tuesday at 24180, with losses extended overnight as the index edges down to near 24100.

Copper Prices Plunge on Chinese Demand Jitters

Copper prices witnessed their worst single-day session since January 2015 on Tuesday, weighed by investor concerns about the strength of demand from top consumer China amid an improving supply outlook. The metal has been under pressure since last Thursday, when a leading gauge of manufacturing activity in China fell to its lowest mark in five months. Placing added stress on prices were inflows of stocks at London Mercantile Exchange-registered warehouses, with headline inventories jumping to 192,550 tonnes from 10,650 tonnes. In reaction, Copper futures for December delivery tumbled -4.70% from Monday’s settlement price to touch a low of $2.9170 a pound on Tuesday before finding bottom and rebounding modestly overnight to $2.9385. From the price action perspective, $2.9000 a pound represents the immediate support on the downside, a breach of which could see price slump to $2.8500 a pound.

Australia’s GDP Growth Trails Forecast

The Australian economy expanded at a slower than expected pace in the three months to September, with weakness in consumer spending casting a shadow over the growth outlook. Figures released by the Australian Bureau of Statistics on Wednesday showed the country’s gross domestic product increased 0.60% in the third quarter from the 0.90% rate recorded a quarter prior. Economic momentum came in below the consensus forecast of 0.70% growth, with the annualized pace of 2.80% also lagging market projection for 3.00% growth. The result could surprise policymakers at the Reserve Bank of Australia, who decided on Tuesday left interest rates unchanged at 1.50% in anticipation of faster growth. Household consumption was viewed as especially weak after rising a mere 0.20% during the three-month period, underscoring the smallest gain since late 2012. The Australian dollar weakened sharply against the greenback following the release of GDP data, sending AUDUSD slipping -0.40% to 0.7580.

Heightened Price Pressures Hurt UK Services Growth

Growth in the UK’s services sector slowed during November as consumers were slammed by a "double whammy" of higher prices and weaker wage gains. The monthly Markit/CIPS UK Services Purchasing Managers’ Index slumped to 53.8 last month from to 55.6 in October, lagging market expectations of 55.0. The PMI survey revealed that prices charged by services firms, which include businesses ranging from hotels to hairdressers, touched their highest since February 2008, and the second-highest level since Markit started compiling the survey in 1996. The latest pick-up in prices should worry the Bank of England, which had said last month that inflation was likely to have already peaked. The Central Bank lifted the benchmark interest rate for the first time in a decade from 0.25% to 0.50% on November 2nd. In the meantime, the Euro is surging against the British Pound in Wednesday Asian trade to currently hover around 0.8820.