- The US ISM Services PMI jumped to its highest level in almost a year, blowing past market expectations for a 53.0 read to come in at 57.1. It’s difficult to know exactly why both the ISM Manufacturing and Non-Manufacturing PMIs took such a dive in August, but it does now look to have been only been a temporary blip and the path to a December rate rise from the Fed is looking increasingly comfortable. The Bloomberg WIRP bond market implied probability of a December rate hike moved to 65% after starting the week at 51%.
- However, this did not provide much of a boost to the US dollar index, which closed the session largely unchanged. Although the USD did see a big 0.7% gain against the Japanese yen as the rally in oil prices and the drop in the VIX reduced demand for safe haven assets.
- The aussie dollar lost 0.06% to USD 0.7616, but it dropped to an intra-session low of USD 0.7593 immediately after the ISM PMI release. More serious drops in the aussie dollar are being protected by the rally we’ve seen in commodities. But should commodities prices pullback, the prospect of a December rate hike from the Fed could start to push the aussie dollar back to its May levels of USD 0.72-0.73.
- The US EIA crude oil inventories provided another 2.2% gain for WTI oil overnight. Crude oil inventories declined for their fifth straight week, declining by roughly 3 million barrels against market expectations for a 1 million barrel increase. This provided further optimism to the market alongside speculative hopes from the Venezuelan oil minister that OPEC and Non-OPEC could commit to a 1.2 million barrel per day supply cut. WTI oil moved to within a hair’s breadth of the key USD 50 level closing at US 49.74. Although given the huge burst in supply we saw after oil popped above USD 50 last time, which drove the July selloff, it does seem like it’s difficult to sustain these levels without a more comprehensive supply cut deal.
- The gains in the oil market were the main driver of the S&P 500’s 0.6% gain. The oil price helped see the energy sector rally 1.8% to be the best performer, closely followed by a 1.6% gain in financials as rate hike expectations continued to firm up.
- The 0.7% gain in the Bloomberg Commodity Index was primarily driven by oil, but copper also saw a 0.2% bounce. And despite the strong US data, the gold price managed to close the session relatively unchanged.
- The ASX SPI Futures are pointing to a 27 point gain at the open. Both BHP’s (+1.76%) and CBA’s (+1.45%) ADRs performed well in the US overnight boding well for the session today.
- Most of the Asia-Pacific markets look set to open higher. But the 0.7% drop in the yen will be welcomed by Japanese equities, which look set to open 0.8% higher.
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