ISM services PMI and Jobless Claims ahead

• Mainland European equities weaken and oil gains help lift the FTSE.

• Strong ISM, JOLTS and ADP data ease calls for a 50bp rate cut.

• ISM services PMI and Jobless Claims ahead.

Mainland European indices are leading the way lower in a session that follows on from an Asian session that finally saw the surge in Hong Kong shares come to a halt. While September ended with record highs for the German DAX, we are seeing increased jitters come into play across European and US equities given the geopolitical and earnings risks that lay ahead. Once again, the FTSE 100 continues to outperform thanks in part to its heavy energy weighting, with Shell gaining ground on increased tension over the potential for an Israeli retaliation to this week’s Iranian air assault. Coming on a day that has seen weakness across much of the commodities space, the continued rise of crude does continue to highlight the potential impending rebound as the risk of a wider Middle East emerges alongside a burgeoning Chinese recovery story.

Traders remain keenly focused on data out of the US, with the chances of a 50-basis point rate cut growing increasingly unlikely as we move throughout a week that has done little to raise expectations of a recession or drastic need to slash rates as quickly as possible. With the ISM manufacturing PMI and job openings data both coming in better than expected, yesterday saw the ADP payrolls buck the bearish trend after four consecutive monthly declines. The 142k figure raises hopes of a similarly strong headline payrolls figure on Friday, although such strength typically comes hand in hand with expectations of a more considered approach to easing from the Fed.

Looking ahead, the ISM services PMI survey provides a key indicator of the direction of travel for the US economy. Despite calls for an impending recession in the US based on previous weak manufacturing PMI surveys, the services sector remains key to keeping the economy above water as we wait for the interest rate cuts to kick in. Meanwhile, the deterioration seen in the past two jobless claims figures serve to cool claims that we could see a surge in unemployment, with today’s release likely to provide the basis for a more confident approach to tomorrows jobs report.