U.S. stock futures are indicating a lower opening Tuesday ahead of ISM
Non-manufacturing figures for August expected to show economic activity
is still expanding. In Europe stocks rebounded early in the session on
the Swiss National Bank's intervention.
S&P 500 Index futures are currently down 2.1 percent ahead of the open. Today’s main economic release is ISM Non-manufacturing Index expected (14:00 GMT) to decline to 51.0 in August from 52.7 in July showing U.S. services grew at the slowest pace since late 2009. Despite the index weakening it is still above the 50.0 threshold indicating that the service sector is still expanding.
We continue to maintain our modestly positive view on stocks as the spread between bond yields and dividend yields (and earnings yields) are the widest since 1997 in the MSCI World Index. Our view is founded on the premise that the U.S. economy will not enter a recession. The biggest risk to our view is the escalating crisis in Europe. If the crisis consolidates and spills into the global banking system it could pose a severe risk to the real economy and thus our view on stocks. For now though we stick to a scenario of a temporary slowdown in the global economy but not a new recession.
SNB fights for minimum 1.20 EURCHF exchange rate; German factory orders disappointed in July
Early this morning the Swiss National Bank announced that the appreciation of the Swiss Franc poses a huge risk of deflation and thus the SNB has chosen to fight for a minimum EURCHF exchange rate of 1.20. The SNB says it is ready to buy foreign currencies in unlimited amounts to hold this exchange rate to the Swiss Franc. Currency pegs have been tried before without much luck so the SNB will find it very costly to defend its new target exchange rate to the Euro if the market decides it wants the EURCHF down under 1.20. However, only the future will tell us how effective the SNB's plan is. Nevertheless, the SNB announcement kick started a rebound in European stocks and the Euro STOXX 50 Index futures are currently up 0.1 percent mid-way through the session.
Earlier German factory orders in July came out at -2.8 percent MoM, worse than estimates of -1.5 percent, indicating a faster slowdown in Germany’s manufacturing sector. This is hardly a big surprise as the export hungry Germany is dependent on economic growth in China and India which has been slowing down in 2011.
S&P 500 Index futures are currently down 2.1 percent ahead of the open. Today’s main economic release is ISM Non-manufacturing Index expected (14:00 GMT) to decline to 51.0 in August from 52.7 in July showing U.S. services grew at the slowest pace since late 2009. Despite the index weakening it is still above the 50.0 threshold indicating that the service sector is still expanding.
We continue to maintain our modestly positive view on stocks as the spread between bond yields and dividend yields (and earnings yields) are the widest since 1997 in the MSCI World Index. Our view is founded on the premise that the U.S. economy will not enter a recession. The biggest risk to our view is the escalating crisis in Europe. If the crisis consolidates and spills into the global banking system it could pose a severe risk to the real economy and thus our view on stocks. For now though we stick to a scenario of a temporary slowdown in the global economy but not a new recession.
SNB fights for minimum 1.20 EURCHF exchange rate; German factory orders disappointed in July
Early this morning the Swiss National Bank announced that the appreciation of the Swiss Franc poses a huge risk of deflation and thus the SNB has chosen to fight for a minimum EURCHF exchange rate of 1.20. The SNB says it is ready to buy foreign currencies in unlimited amounts to hold this exchange rate to the Swiss Franc. Currency pegs have been tried before without much luck so the SNB will find it very costly to defend its new target exchange rate to the Euro if the market decides it wants the EURCHF down under 1.20. However, only the future will tell us how effective the SNB's plan is. Nevertheless, the SNB announcement kick started a rebound in European stocks and the Euro STOXX 50 Index futures are currently up 0.1 percent mid-way through the session.
Earlier German factory orders in July came out at -2.8 percent MoM, worse than estimates of -1.5 percent, indicating a faster slowdown in Germany’s manufacturing sector. This is hardly a big surprise as the export hungry Germany is dependent on economic growth in China and India which has been slowing down in 2011.
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