UK housing slumps, as eyes turn to the US jobs report

• Chinese PMI provides temporary relief for Asian markets
• UK housing sees biggest slump since 2009
• All eyes on the US jobs report, with weak ADP signalling potential NFP decline

Equities throughout Asia and Europe look to be heading towards the weekend on an upbeat tone, with improved data out of China coupling with an expectation of weakening payrolls within this afternoon’s US jobs report.

Amid all the recent talk of a burgeoning crisis in China, the overnight Caixin Manufacturing PMI saw Shanghai stocks post a relief rally after a surprise jump back into expansion territory (51.0 from 49.2). This was the strongest pace of expansion in factory activity since February, bringing hope that Beijing’s efforts to revive the economy are working. Both output and new orders returned to expansion while employment gained for the first time in 6 months.

The UK housing market continues to show signs of distress, with the Nationwide house price index slipping to a 5.3% decline over the year to August. This is the steepest drop off in house prices since July 2009, as higher interest rates drive borrowing costs higher and hurt affordability. The silver lining for the Bank of England will be the hope that higher mortgage costs and declining home valuations will ultimately dampen consumption and lower inflation.  

U.S. markets snapped their four-day winning streak yesterday heading lower ahead of a US jobs report that brings heightened uncertainty for traders. Weakening JOLTS job openings data alongside Wednesday’s ADP payrolls decline brought confidence for equity bulls over a potentially underwhelming payrolls figure. However, yesterday’s decline in unemployment claims does allay some speculation over any immediate crisis, bringing some risk-off sentiment as we head towards the release. Markets have found themselves firmly within a ‘bad news is good news’ mentality of late, and today’s jobs report will undoubtedly be viewed through that prism. With markets already looking for a lower non-farm payrolls figure between 170-180k, a goldilocks scenario for equity markets would be a steeper decline in payrolls alongside a weak average earnings figure.