We've had some economic news in the past 12 hours but in the era where central bank actions overrule all else, the market really does not care. Yesterday was one of those bemusing days where 3 economic data points came out and all looked decent but the market actually reacted poorly at first to one specifically because it might have meant less of a chance for QE. This is the backwards world we now live in.
Anyhow, on to the more recent numbers – ADP came out this morning at 163K versus expectations of 120K. I am wondering how Friday's employment data is going to take into account the lack of auto plant shutdowns which have affected weekly claims throughout the month.
Meanwhile in China we had the official PMI come out at 50.1 which is an 8 month low (focuses on larger state sponsored companies) while the HSBC private sector PMI improved some (focuses on smaller and mid sized companies).
- China's official factory purchasing managers' index fell to an eight-month low of 50.1 in July, suggesting the sector is barely growing, while a rival HSBC survey indicated the more market-sensitive private sector is starting to recover. The HSBC PMI rose to a seasonally adjusted 49.3, its highest level since February and little changed from a flash, or preliminary, estimate of 49.5.
- Larger firms, which tend to be less sensitive to short-term market movements than their smaller counterparts, are under pressure from rising inventories.
- Continuing the dichotomy, the official survey showed that new orders, including new export orders, contracted more deeply in July than in June. The new export orders index plunged to 46.6 points.
Certainly for the next 36 hours or so we are hostage to central banks. It seems the marketplace is thinking a push out of "low rates to 2015" versus 2014, and perhaps another lesser program of some sort rather than a full QE, with expectation that comes six weeks down the road. And then something more ambitious tomorrow with Mr. Draghi. But it's guesswork and these things don't yield much benefit to the real economies, they just create psychological animal spirits.
As for the market, after a 2 day surge the market has consolidated those gains in good fashion. But really none of it matters due to factors we mentioned above. There are now multiple gaps below to fill, it remains interesting to see what catalyst will do it. In the meantime the market is doing this AM what it has done ahead of Fed meetings since 1994 – front run it. [Jun 16, 2012: Almost Entire Market Return since 1994 Centered Around Federal Reserve Announcement Days]
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