Stocks dip on weaker economic news, Aussie rallies – changing landscape

We live in interesting times.

Last night stocks in the US dipped on the back of weaker – not stronger – US data with consumer confidence printing 86 against the 92.5 expected while the Chicago PMI fell from 64.3 last to 60.5 in September.

That is a change from what we have seen recently and rationally such data should have helped stocks if the recent paradigm had of held.

But, to the extent that good economic news is bad news and weak news is bad news for stocks we may be seeing the emergence – or more correctly confirmation – of growing discomfort with current levels and the fact it has been so long since a 5% or 10% pull back.

The S&P 500 is a market in search of a correction – 1,947 is the key.

Anyway at the close, and after a saw-tooth day, the Dow finished off 28 points for a fall of 0.17% to 17,043. The Nasdaq dropped 0.29% to 4,493 while the S&P 500 fell the same amount for a loss of 6 points to 1,972.

In Europe the data was abysmal with German unemployment unexpectedly rose 13,000. There is enough economic weakness in Europe at the moment without Germany slipping into the mire. Euro is lower as a result and stocks rose on the hope of ECB quantitative easing. The DAX was up 0.54% to 9,474, the CAC rose 1.33% and stocks in Milan were up 1.78% and 1.31% respectively.

The DAX looks ugly – break of trend, retest, rejection. So even with last night moves it looks biased lower.

In the UK, Q2 GDP printed 3.2% as expected which shows the big gap between having your own central bank and currency and being stuck in a one size fits all straight jacket of the Euro and the ECB. Stocks however fell 0.36%.

In Australia yesterday it looked like a little end of quarter machinations helped the market higher and the physical finished up 0.5% to 5,292.8. feeding the end of quarter window dressing theory is the fact that the December SPI 200 futures last night dropped an amazing 33 points to 5249. That’s much uglier than I expected given everything I have written above so we’ll be watching the market closely today to see where it heads. It has however broken a big level and is heading lower.

- In Asia it is the start of Chinese Golden Week today so there are holidays in China and Hong Kong but that does not mean that things will be quiet. Chinese official manufacturing PMI is out and given its a holiday more people will be on the streets in Hong Kong. Markets across the region will remain focussed on what happens there and how Beijing handles the demonstrations. The Nikkei is open and after a fall 0f 0.87% to 16,174 it will likely be pressured again today.

On currency markets the US dollar remains firm but the Aussie is doing well – in a relative sense anyway. After making a low of 0.8684 Monday afternoon the Aussies rally has continued and in many ways strengthened with a retest of 87 cents yesterday morning before rallying back to 0.8745 this morning.

Is that a bottom I see before me?

The big story of the night is the crash in Nymex crude which fell $3.40 to $91.35 a barrell. That is a terrible technical move after recent gains and a dip below $90 could be near. Copper fell to $3.01 a pound and gold remains unloved at $1,209 and ounce. Silver is under $17 at $16.96 down 3.47% as the heavy selling continues. On the Ags wheat fell 1%, corn lost 1.6% and soybeans were 1.32% lower.

On the data front it is PMI day both here in Australia with the release of the AiG PMI as well as Chinese and then European and US manufacturing PMI’s. Retail trade in Australia is super important as well to see how consumers are travelling.

Greg McKenna

NB: Please note all references to rates above are approximate

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