Daily Market Reports | Dec 02 2011
By Greg Peel
The Dow lost 25 points or 0.2% while the S&P fell 0.2% to 1244 but the Nasdaq gained 0.2%.
The first of the month is always global manufacturing PMI day and the news across the globe has not been particularly rosy over the last 24 hours.
Australia's manufacturing sector managed to struggle up to a reading of 47.8 in November from 47.4 in October but remains very much in contraction (result under 50) as it has now for many months. The most disappointing of all results came from China, where the official PMI fell to 49.0 from 50.4 to mark its first contractionary result since 2009. It had earlier appeared that China's PMI might be swinging to the upside once more, but Beijing's tightening measures and the impact of weaker export demand from Europe have clearly taken their toll.
Beijing nevertheless reduced its bank reserve ratio requirement by a “double-whammy” 50 basis points on Wednesday to mark its first easing of policy constraints since the GFC stimulus package was unleashed. The move was either part of the global central bank effort of money loosening, or a response to the about to be released PMI, or both. HSBC's independent Chinese PMI reading was even worse, falling to 47.7 from 51.0. HSBC's number leans more towards smaller Chinese businesses compared to the state-owned bias in Beijing's number.
No great shock that the eurozone PMI fell to 46.4 from 47.1 as we assume now the region must be in the recession it had to have, while the UK's fall to 47.6 from 47.8 will be disappointing in the face of ongoing QE. All of the above, one notes, are November results in contraction, so God bless America. The US PMI rose a to a better than expected 52.7 from 50.8.
It was not all good news on the US economic data front last night nevertheless. Chain store sales growth fell to 3.2% year-on-year in November compared to 3.7% in October. While the result belied solid Black Friday sales, economists put the difference down to steep discounting. After Wednesday's shockingly positive ADP private sector jobs number, Wall Street is looking for a good non-farm payrolls result tonight as well. But last night weekly new jobless claims crept back up over 400,000 once more to let a bit of air out of the balloon.
On the other hand, November's vehicle sales numbers for the US were the strongest all year.
There was relief in Europe after bond auctions from both the Spanish and French governments met with solid demand. Yields were more substantial than equivalent previous auctions but the demand did see some of the upward pressure ease. Spain sold a net E3.75bn of various maturities with three years settling at 5.2%, up from 3.6% in October. France sold a net E4.3bn across the curve and while yields on five and thirty year bonds were higher than in October (2.4% for the fives compared to 1.9%), yields settled for tens and fifteens were actually lower than in October.
French president Nicholas Sarkozy last night reinforced his intention to push forward suggested changes to the eurozone treaty in order to bring the region into closer fiscal union. German chancellor Angela Merkel is due to address the Bundestag tonight and will echo those sentiments. ECB president Mario Draghi is also in on the act, hinting that once closer fiscal union is achieved in the eurozone the central bank will be ready to step up its activities.
This is what the world wants to hear, and has been wanting to hear for some time. Unfortunately implementation will also take some time.
So it was that Wall Street took a breather last night after Wednesday night's huge move and ahead of tonight's all-important job numbers. Volumes again fell back to minimal. All talk now is of a Santa Rally.
The definition of a Santa Rally has expanded somewhat over the years. Originally it referred only to the week between Christmas and New Year which for the US is the last week of the accounting year for most. A bit of window dressing is typical and the joke is that Santa brought a rally. Nowadays, however, it tends to refer to trade leading up to Christmas given stats show December is often one of the best months of the year for equities. It's thus fingers crossed on Wall Street for a good run from here but the sceptics wonder what it is that will drive such a rally now that we're back into a waiting process with Europe and given the sort of global economic data above. We may now simply meander.
Other markets were largely meandering last night. The euro rose slightly to see the US dollar index slip to 78.32 while the Aussie lost some heat in falling half a cent to US$1.0228. Gold fell US$3.20 to US$1744.90/oz.
Base metals were mostly weaker after their big runs on Wednesday albeit copper and aluminium still managed to close higher. There was also a bit of a square-up in oil markets with Brent falling US$1.64 to US$109.04/bbl and West Texas losing US38c to US$99.98/bbl.
The SPI Overnight was up 2 points.
Consensus has US jobs rising by 125,000 tonight with the unemployment rate remaining steady at 9.0%. Personally I think economists might as well simply wheel out a dart board given results are often wildly different to expectations, and then wildly revised again up to two months later.
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