US data lifts holiday-thinned Asia

US GDP slumps, ADP Payrolls shine

US markets quickly put the first presidential debate behind them, being long on hot air, but short of substance. US GDP for Q2 shrunk by around 31.0% as expected, but being so far backwards-looking was also ignored by markets, with Q3 GDP expected to rebound strongly. ADP Employment for September though, performed strongly, adding 749,000 jobs, well above expectations. Combined with ongoing talks between Steve Mnuchin and Nancy Pelosi over a long-awaited stage two US fiscal stimulus that lifted equity markets to a strong finish, although currencies, precious metals and energy contented themselves to mark time.

The US releases another slew of data tonight featuring personal consumption expenditure, initial and continuing jobless claims, as well as the ISM Manufacturing PMI. Jobless claims are expected to remain steady around 850,000 and 12.6 million respectively, with the ISM Manufacturing PMI holding steady around 56.0, comfortably in expansionary territory. The data will suggest that the US recovery remains on track, although gains may be stalling, and we note as Federal money runs out, US airlines are preparing mass layoffs. With Mnuchin and Pelosi still talking though about a possible $2.0 trillion follow-on fiscal package, markets should give the US the benefit of the doubt until tomorrow’s Non-Farm Payrolls.

Asian trading volumes will be subdued today and tomorrow as Northern Asia heavyweights head mid-autumn and National holidays. Mainland China, Hong Kong, Macau, as well as South Korea and Taiwan are all on holiday for the rest of the week. Mainland China is on holiday until next Friday. That is likely to leave the remainder of Asia content to play follow-the-leader, in this case, New York, especially with heavyweight US data due out tomorrow night.

Still, there has been quite a lot of data released in Asia this morning, mostly positive. Australian Manufacturing PMI for September rose again to 55.4. Japan’s Tankan Large Manufacturers Index improved slightly to -27, poor, but less poor than last month. South Korea’s Balance of Trade rose impressively to $8.90 billion, led by a substantial rise in exports. Elsewhere, manufacturing PMI’s from Japan, Malaysia, the Philippines, Thailand and Vietnam all showed improvements, with Vietnam and the Philippines being the standouts. Only Indonesian PMI fell, as it deals with Covid-19, notably in key population and industrial centres. The overall picture is one of a consistent, if very uneven recovery by the region, with North Asia ex-Japan leading the charge.

With so many Asian centres on holiday today, trading is likely to look like a technical Friday across the region. Markets will be vulnerable to headline surprises. In this case, though, the highest risk, I believe, is a positive one, if an announcement that a US fiscal stimulus deal has been reached. If that should occur, and we all deserve some good news for a change, it should be strongly positive for equity markets, and pro-cyclical major and regional currencies.