Markets tumble on disappointing economic statistics

US markets fell sharply on Wednesday after economic reports showed US manufacturing activity slowed more than expected in September. The Institute for Supply Management’s Manufacturing index dropped to 56.6% in September, from a three-month high of 59% in August. The consensus forecast for the index was 58.5%. The disappointing ISM report followed Automatic Data Processing Research Institute’s jobs data which showed the private sector added 213000 jobs in US just as the experts predicted. The report from released by US Commerce Department showed construction spending on U.S. construction projects unexpectedly fell in August,. The drop in manufacturing activity wasn’t unexpected since weak global economy and strong dollar contribute to falling demand. Analysts believe the pace of GDP growth should still remain above the 2.2 percent average rate for the last two years and reach a healthy 3.5 percent. The Dow Jones Industrial Average (DJI) fell 238.19 points, or 1.4%, to 16,804.71 below its 50-day moving average. The index is down 2.75% from its record close set September 19. The S&P 500 (SPX) fell 26.13 points, or 1.3%, to 1,946.16, with stocks of companies producing materials and industrial output leading the losses.

Economic reports released yesterday in Europe weren’t positive either, pushing markets further down. Markit’s PMI index for Germany dipped to 49.9 below the threshold value of 50, indicating the country joined France in contraction. The UK PMI number fell to 51.6, below the 52.7 expected by economists. Today at 13:45 CET the European Central Bank will announce its decision on interest rate and at 14:30 CET ECB President Mario Draghi will speak at a press conference. ECB is not expected to change its interest rate. The experts expect the ECB to expand further its asset backed securities purchase plan to the tune of 200-300 billion euroes for the next two years, and Draghi is expected to present the details of the plan. The plan calls for purchases of securities of lower grade than the standard ECB usually requires for collateral, and Germany and others have expressed their concern over the move. But the disappointing economic reports this week, which showed manufacturing slowed down and inflation fell to 0.3 – far lower than ECB’s medium-term target of 2 percent, have convinced a majority of ECB’s Governing Council members it is time to act.

Oil fell yesterday after Saudi Arabia cut its November official selling prices to all areas. Brent for November settlement fell 51 cents, or 0.5 percent, to end the session at $94.16 a barrel on the London-based ICE Futures Europe exchange. It closed at the lowest level since June 28, 2012. The volume of all futures traded was 19 percent above the 100-day average at 3:24 p.m. in New York. Prices decreased 16 percent last quarter and have slipped 15 percent this year. The Saudi Arabian Oil Co., Aramco, cut its November Arab Light oil prices by between 20 cents and $1.20 a barrel. The price cut by the major oil producer amid weakening global demand is a sign they don’t plan to cut production and instead aim at increasing their market share. 

Wheat rose for a second day as dry weather in Australia and lower exports from Russia indicated possibility of supply constrains against anticipated record global output. The contract for December delivery rose as much as 0.9 percent to $4.835 a bushel on the Chicago Board of Trade, before trading at $4.8225 by 2:15 p.m. in Singapore. Prices fell to $4.6625 on Sept. 25, the lowest for a most-active contract since June 2010. The exports from Russia fell after domestic prices rose in the aftermath of Ukraine crisis. Corn for December delivery traded at $3.215 a bushel from $3.2125 yesterday, when prices touched $3.1825, the lowest since September 2009. Soybeans for delivery in November advanced 0.1 percent to $9.18 a bushel after retreating to $9.04 yesterday, the lowest for a most-active contract since July 2010.