Daily Market Reports | Oct 01 2012
By Greg Peel
Wall Street plunged on the open on Friday to be down 118 Dow points before 11am. The impetus for weakness was cited as the result of the Chicago PMI, but one feels the market has been building towards some sort of post-QE3 loss of fizz.
The Chicago PMI measures manufacturing activity in the major Chicago mid-west region, and is about the same as the Philly and Empire State indices for the north-east. The result was a fall to 49.7 this month from 50.3 in September. It was worse than expected, and the fall into contraction comes after a gradual monthly decline from a high point of red hot expansion of 64.0 in February.
It looked like we might have been in for a profit-taking close to the September quarter – not unsurprising given the S&P 500 had risen 6% for the quarter and 17% for the year to date, reaching its highest level in five years. But then we were also waiting for the results of the Spanish bank stress tests. Consensus was for a capital injection requirement of E60bn but some feared the full E100bn set aside by the troika may be needed.
The result came in at E59.3bn. While this was bang on, the good news was that this total was spread over less than half of the banks tested, implying more than half of Spain's banks do not need funding assistance at all. Wall Street liked the result, and by early afternoon it appeared the Dow may even close in the green. But this was the last day of the quarter, thus open to volatility, and the final hours saw a battle royale between the profit-takers and underweight buyers before the Dow finally settled down 48 points or 0.4%. The S&P lost 0.5% to 1440 and the Apple, aka the Nasdaq, lost 0.6%.
Moody's is yet to decide on whether to downgrade Spain's bonds to junk.
With Chicago manufacturing on the downhill slide, one might assume the US economy is heading for contraction. But the other major data release on Friday was personal spending and income, and it told a different tale.
US consumer spending jumped 0.5% in August, the biggest jump in six months. However, it's not all beer and skittles. Higher gasoline prices were a significant contributor, and given incomes rose only 0.1% in the same period, the implication is that Americans were dipping into savings to fill their tanks. Oil prices were lower in September, but in a very volatile market now dominated by Israel-Iran tensions on the one hand and potential US strategic reserve releases on the other. On Friday night Brent crude rose US38c to US$112.39/bbl and West Texas added US26c to US$92.11/bbl.
It seems that US consumers are a little fickle at present, and one can't blame them. Michigan Uni's fortnightly gauge of consumer sentiment marked 78.3, up from 74.3 a month ago, but down from 79.2 a fortnight ago.
Weakness in US stocks usually means a stronger US dollar, and the stress test results were unable to push the euro higher. The dollar index rose 0.4% on Friday to 79.89, sending gold back down US$6.60 to US$1771.10/oz and the Aussie down 0.6% to 1.0378. Base metals were mixed on small moves.
The SPI Overnight fell 19 points or 0.4%.
Over the weekend, HSBC released its measure of China's manufacturing PMI for September, which came in at 47.9 to represent the eleventh straight month of contraction. At the very least, that number is up from 47.6 in August and from the flash estimate for September of 47.8, implying a slight slowing in the pace of contraction.
Today is a public holiday in NSW, Western Australia and South Australia. The ASX is open, but all the major brokers and fund managers are closed, so there is unlikely to be much action. There will be no FNArena Broker Call this morning.
China is also closed today and will be closed through Friday for Golden Week. Holidays nevertheless do not stop Beijing making data releases, and today we will see the official September manufacturing PMI along with the same from Australia, the eurozone, UK and US. On Wednesday we see the equivalent round of service sector PMIs.
In Australia we'll also see the TD Securities inflation gauge today, the RP Data-Rismark house price index tomorrow, new home sales and the trade balance on Wednesday, building approvals and retail sales on Thursday, and the construction PMI on Friday. On Tuesday the RBA will make a rate decision and leave the cash rate unchanged at 3.5%, as far as the majority of economists are concerned. The RBA has in recent times favoured Cup Day for rate changes, reflecting the fact a lot of September quarter data (including inflation but not the GDP) will be in by the November meeting.
In terms of the RBA and the Aussie dollar, see Why The Aussie Won't Go Down.
Aside from its PMIs, the US will also see construction spending tonight, vehicle sales tomorrow, and factory orders and chain store sales on Thursday. The real focus nevertheless will be on the ADP private sector jobs report on Wednesday and non-farm payrolls on Friday. With QE3 now in place, the September US jobs numbers will be fodder more for the presidential candidates than the market.
This week is the first of the new quarter. In the past couple of years the December quarter has been good for Wall Street, but only in terms of a turnaround from September quarter weakness. This September quarter has been a cracker, so do we thus go down this time, even with QE3 in place? Perhaps the quarterly reporting season will offer up some weak results. Alcoa reports next Tuesday (October 9), thus kicking off the season.
Rudi will appear on Sky Business at Thursday at noon and again at 7pm for the Switzer Report.
For further global economic release dates and local company events please refer to the FNArena Calendar.
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