Daily Market Reports | Mar 25 2014
By Greg Peel
The Dow closed down 26 points or 0.2% while the S&P fell 0.5% to 1857 as the Nasdaq dropped 1.0%.
Yesterday’s flash estimate of HSBC’s China manufacturing PMI for March came in at 48.1, down from 48.5 in February. The reading is disappointing given hopes were held for a rebound in the pace of manufacturing growth following the lunar new year disruption, as is the case most years. Output and new orders both weakened while export orders grew for the first time in four months, suggesting weakness is in the domestic economy.
The reading highlights concerns China’s economy is slowing to a point it will miss Beijing’s GDP growth forecast of 7.5% in 2014 and generally become a drag on the global economic recovery. Many an economist has been downgrading forecasts since it became apparent Beijing has stepped up its financial reform program, squeezing out shadow banking and indebted companies and allowing greater volatility in the renminbi trading band. While such measures are seen as ultimately positive, they are also short term disruptive and beg the question as to by how much Beijing will allow GDP growth to slow.
A weak release from China of this nature could normally be relied upon to spark weakness in the Aussie dollar and the Australian stock market. But yesterday the opposite was true, suggesting investors are back on the stimulus bandwagon, otherwise known as "bad news can be good news". The Aussie is up half a cent from yesterday morning at US$0.9134 and the ASX 200, while not exactly firing yesterday, did turn an early drop into a positive close.
The eurozone’s flash manufacturing PMI ticked down to 53.0 from 53.2 and the composite PMI, which incorporates services, eased to 53.2 from 53.3. The adjustments are little to be concerned over with Europe’s economy clearly in expansion territory.
The US manufacturing PMI showed a fall to 55.5 from 57.1 in February. This is still a healthy pace, and indeed US manufacturing somehow managed to continue growing a-pace right through all the bad weather. The New York and Philadelphia Fed manufacturing indices showed quite a different picture, but what the hey.
Wall Street likely needs some evidence in subsequent data that the weather excuse is indeed justified and that the US recovery has not stalled. Markets are still experiencing reverberations from last week’s suggestion from Janet Yellen the first Fed rate rise may not be as far off as assumed. Last night proved a volatile session, with the Dow up around 80 from the bell and down 85 at lunchtime before staging an afternoon recovery of sorts. The S&P has again flirted with a new all-time high in recent sessions which appears to be providing resistance at this point. The Nasdaq has proven the hardest hit since Yellen made her comments.
Gold copped a hiding last night, falling US$24.90 to US$1310.00/oz. The fall was attributed to larger funds deciding to reduce gold holdings and reposition for Yellen’s interest rate rise. The US bond market is not so impatient, with the ten-year yield falling another 2 basis points to 2.73% last night. The US dollar index slipped 0.2% to 79.92.
Base metals were mixed on small moves in London while spot iron ore fell US20c to US$110.50/t.
The weak China data was enough to help Brent crude down US45c to US$106.52/bbl while an oil spill that shut down a major seaport in Texas was behind a US65c rise in West Texas to US$99.55/bbl.
The SPI Overnight fell 33 points or 0.6%.
There’s a raft of US data out tonight including two house price indices, new home sales, consumer confidence and the Richmond Fed manufacturing index, which straddle a period from January to March and may help to discern whether or not the weather had an effect.
TPG Telecom ((TPM)) will release its interim result today.
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