Poor US data triggers risk aversion ahead of Friday’s non-farms

<p>Underperforming US data out in the last 24 hours has triggered a concerted move to avert risky asset classes such as heavyweight mining and oil […]</p>

Underperforming US data out in the last 24 hours has triggered a concerted move to avert risky asset classes such as heavyweight mining and oil stocks, with funds flowing into gold, which subsequently saw a new record high yet again above $1640.

It was always likely to be a data sensitive week with US non-farm payrolls due out on Friday, and unfortunately with both ISM manufacturing yesterday and personal income and spending today missing market expectations, traders have moved to offload some risk.

It’s the mining sector that has really weighed on the UK Index today, with the FTSE 350 mining sector off 2% in trading and hitting a new five-week low in the process. Oil firms have also weighed, with the sector lower by 0.6% on the day, hitting a new three-week low. Fresnillo, the silver miner, topped the FTSE 100 however, outperforming the weaker sector after reporting a 92% rise in first-half core profits to $757 million, helped no end by higher precious metals prices. Fresnillo shares climbed 5% on the day, hitting a new high in the process of £18.40.

US personal income and spending data which came in below market consensus has certainly played a role in the reduced share buyer demand seen today. Personal income came in at an anaemic +0.1%, when the market was expecting a rise of 0.2%. More troubling however was the first drop in consumer spending for two years, which fell 0.2%. This is particularly concerning, considering consumer spending accounts for roughly 70% of US activity. When one aligns today’s data with yesterday’s really poor US ISM manufacturing data, it paints a picture of more headwinds for US growth in the third quarter and increases market tensions ahead of Friday’s non farm payrolls.

Investors are likely to pay strict attention to the ADP employment report due out tomorrow afternoon from the US to help provide clues as to what to expect from Friday’s broader jobs data and we could witness yet more stock price sensitivity from this.

Concerns regarding US growth continued alongside the sideshow of a feared escalation in the sovereign debt problem within Europe, which saw Italian bond yields hit a new high above 6% for 10 year bonds, whilst similar increases was seen for Spanish 10-year bonds. From an equity perspective, it was no surprise therefore to see both the Italian MIB and Spanish IBEX indices see greater losses on the day as compared to their European peers.

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