Daily Market Reports | Oct 02 2015
By Greg Peel
The Dow closed down 12 points or 0.1% while the S&P gained 0.25 to 1923 and the Nasdaq rose 0.2%.
Cherry Picking
Yesterday’s session on Bridge Street was a game played in two halves.
The ASX200 opened the session, the month and the December quarter with a 40 point gain, suggesting Wednesday’s window-dressed session did indeed include an element of buying for other purposes, most likely technical. The index previously returned to the original correction low and then rebounded back above the solid support level of 5000, which is all very positive.
There the market stalled as traders awaited the midday release of the all-important Chinese purchasing managers’ indices (PMI).
In less than half an hour following those releases we were up another 40 points, and by the close we were up 90 points in total. The impetus for a second burst of strength came no doubt from the fact Beijing’s official September manufacturing PMI ticked up slightly, to 49.8 from August’s 49.7.
It’s hardly an increase to write home about, and indeed 49.8 implies China’s manufacturing sector remains in contraction (<50). But it was an increase, and not a decrease, which suggests, potentially, that the manufacturing decline in China we’ve seen these past few months may now have bottomed out on the back of Beijing’s various stimulus measures.
In fact, even an unchanged number would have been positive in that sense. And that was actually the case for China’s now larger services sector, for which Beijing’s PMI came in at 53.4, in line with August.
However…
Independent surveyor Caixin’s picture looks very different. Caixin’s manufacturing PMI, weighted more towards small and medium enterprises, fell to 47.2 from 47.3. Caixin’s services PMI fell to 50.5 from 51.5. We recall that it was Caixin’s flash estimate of August manufacturing PMI that sent the ASX200, and global markets, tumbling in the first place.
So it would appear the market has cherry-picked the stronger result. Admittedly, Caixin’s flash estimate of September manufacturing came in at 47.0 last week, so 47.2 is actually an improvement in a sense. It appears Bridge Street was happy to run with the numbers on the smaller Chinese manufacturing sector as sufficient reason to push on with the technical rebound from the lows.
In sector terms, it makes sense that energy (+2.5%) and materials (+1.9%) should see solid gains on an improved Chinese PMI, but it was otherwise a very mixed game. Industrials should be supported on a cyclical basis, and they rose 2.0%, but were outpaced by defensive utilities, which saw a 2.3% gain. Telcos were up 1.9%. Consumer staples were up 1.9%. Banks were up 1.8%.
No clear intent is evident there.
For the record, what’s left of Australia’s manufacturing sector saw its PMI rise to 52.1 from 51.7. Lower Aussie kicking in? Japan fell to 51.0 from 51.7.
Confusing
The UK manufacturing PMI fell to 51.5 from 51.6. London’s stock market was largely flat. The eurozone PMI was unchanged at 52.0, while Germany in particular fell to 52.3 from 53.3. The German stock market fell 1.6%.
The flat close on the Dow last night belies the fact the mood in Germany carried across the pond and indeed the Dow was down over 200 points mid-session. It then rallied all the way back.
So why was it down? Did Beijing’s data not ease some of those global growth fears?
Well, not initially. The US manufacturing PMI fell to 50.2 from 51.2 to mark its slowest pace of growth since November 2012. Here, it is the strong dollar being blamed. But on the other hand, a record 18 million new vehicles were sold in the US in September, causing veteran auto-watchers to shake their heads in disbelief.
It is apparent that Americans are now less fearful about jobs and the economy, and as such are confident enough to replace the now ten year-old cars they’ve had since before the GFC. Fuel is cheap, and finance is cheaper.
Nevertheless, the 200 point Dow fall possibly was a simple offset of the 200 point gain the night before, which was seen as pure window-dressing. When the buyers came in, they started buying the materials and energy sectors which does seem to be more like a response to China.
Except that base metal prices actually fell in London overnight. Oil jumped initially, on news of Russian airstrikes in Syria, but quickly fell back again as traders decided there wasn’t really much to be scared about. So the Dow fell when oil went up and rallied back when oil came back down – the reverse of what has been true these past months.
So all a bit strange, and, in the end, a flat close to kick off the start of the December quarter with no directional indicators at this stage. But it’s jobs night tonight, which will likely set the tone.
On that score we should note the US ten-year yield fell as low as 2.00% last night when the stock market was at its low, before rallying back in tandem to be down two basis points on the session at 2.04%. Given the ten-year hit 2.50% at the height of Fed rate rise expectations earlier in the year, we might suggest the bond market does not see a rate rise in 2015, despite the Fed’s insistence.
Commodities
Base metal prices did initially rally on the LME on the Chinese data but fell back in the afternoon, with all metals finishing in the red. Copper and lead, down 1.5%, and nickel, down 2.4%, were the standouts. The Chinese themselves were absent.
Iron ore rose US10c to US$54.50/t.
West Texas was up as much as US$1.75 at its height last night before falling to be down US33c at US$45.02/bbl. Brent is down US57c at US$47.95/bbl.
With the US dollar index flat at 96.16, gold is relatively steady at US$1113.50/oz.
The Aussie is up at US$0.7028 having traded as high as .7080 yesterday following the Chinese data release.
Today
The SPI Overnight closed down 18 points or 0.4%.
Australia’s August retail sales numbers are out this morning. China remains closed.
US jobs numbers are due tonight.
This weekend is a long weekend for most of Australia, including NSW, but the ASX will be open on Monday. Broker research will nevertheless be mostly absent so while The Monday Report will be published as usual, FNArena’s full service will be abbreviated on the day.
Clocks go forward on Sunday morning so as of Tuesday morning, the NYSE will close at 7am Sydney time.
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