Daily Market Reports | Sep 24 2014
By Greg Peel
The Dow closed down 116 points or 0.7% while the S&P fell 0.6% to 1982 and the Nasdaq lost 0.4%.
The bargain hunters moved in early yesterday on Bridge Street, recognising that the usual “lead” from Wall Street was in fact a “follow” in this instance after the ASX200 had crumbled on Monday. Buyers possibly also took note of another slight pullback in US bond yields, which last week had looked for all the world like they might be about to take off.
So it was the index turned around in the morning from a soft start. But when the Chinese PMI came out, it was on for young and old.
Never mind that the iron ore price had fallen into the seventies and that Australian yield stocks have very little to do with China. HSBC’s flash estimate of China’s September manufacturing PMI, which came in at 50.5, up from 50.2 in August and against expectations of 50.0, simply provided an excuse for those waiting on the sidelines to start picking up beaten down names at more attractive prices, and yields.
The same cannot be said for the Aussie dollar nevertheless, which is down another 0.4% to US$0.8842 despite a slight slip in the US dollar index to 84.70. The weaker currency suggests it was locals coming in to defend the turf and not foreigners playing short-term trading games.
Unfortunately the Chinese PMI did not provide a lead for the rest of the world. A flash estimate of the eurozone composite PMI (manufacturing plus services) showed a fall to 52.3 from 52.5 in August to mark its lowest level in 2014 to date. The details within the result were even less encouraging, with the new orders component falling for the third consecutive month and the employment component rising only slightly.
Further concern met the country breakdown, which showed that while Germany saw a slight acceleration, France is suffering a deepening decline.
Over in the US, a flash estimate of the September manufacturing PMI came in flat on August at a healthy 57.9. The Richmond Fed manufacturing index rose to 14 this month from 12 in August despite expectations of a fall to 10. The FHFA house price index of houses on Fannie/Freddie mortgages rose 0.1% in July, well below a 0.5% expectation. But prices are up 4.4% year on year and, somewhat unnervingly, are only 6.4% from their peak in July 2007.
There is not enough there to suggest Wall Street sold off because the data were weak, nor sold off because the data were strong and thus imply a Fed rate rise sooner than later. Traders blamed the weak European data for sending the US ten-year bond yield lower once again, by 3 basis points to 2.54%, and thus encouraging stock selling. However given Wall Street was weak on Monday night, further weakness last night appears to be momentum driven. A recovery attempt at the death failed miserably.
The Chinese PMI was well received on the LME, but early relief gave way to a pervading feeling that metal prices want to go lower still. Hence nickel rebound 1% after Monday night’s big fall and zinc finished in the green, but aluminium, copper and lead all slipped into the red by the close.
Iron ore fell another US40c to US$79.40/t.
Gold managed to rebound US$8.70 to US$1233.80/oz.
Over in the oil markets, West Texas jumped US91c to US$91.65/bbl citing the positive Chinese PMI as a driver, while Brent fell US5c to US$96.86 citing the weak European PMI as a driver. The oils seem at present to be trying to find a new level at which to settle.
The bargain hunters might be scratching their heads today on Bridge Street, given the SPI Overnight is down 33 points or 0.6%. False start yesterday?
The German IFO survey of business sentiment is out tonight, which can be a market mover, while new home sales numbers are due in the US. Locally, the RBA will release its Financial Stability Report.
There’s smattering of smaller ex-divs today.
Rudi will appear on Sky Business this evening at 5.30pm.
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