Most major markets were down 3-4% versus recent peaks as of the close Wednesday; this versus quite overbought levels reached two Fridays ago (Sept 14th). Thursday the indexes had a reflective bounce, followed by some moderate selling again Friday (horrid durable goods orders and weak Chicago PMI). If it feels worse than 3-4% you could be excused as many markets are down either 8 or 9 sessions out of 10 since the before mentioned peak. A lot of individual stocks in the wrong sectors have taken more severe hits but under the surface we continue to see a rotation, although one could argue into "wrong" sectors: consumer staples, utilities, and healthcare. (I'm not sure if Google is technically deemed a "sector") Cyclical areas continue to struggle after a strong bounce thru mid August based on Mario Draghi saying he will hold that euro together no matter what. Commodities ex-precious metals, semiconductors, transports, industrials, et al have lagged. And really that should be no surprise as economic data has been mostly punk since that time the world over, with a host of bell weather type companies offering warnings – everything from Intel to FedEx to Nike. So bulls can argue no one is surprised the global economy is weak, but the question is how much of that is "built in" to the market? Always a difficult question.
This morning is an excellent example – we have followed up the flash purchasing managers index with (surprise!) weak PMI numbers across Europe and China. But markets in Europe and U.S. futures are actually in the green as data has improved "slightly" from "putrid" to "a touch above putrid". All about expectations right?
China (what's that I hear? Green shoots??):
- Chinese manufacturing activity contracted for a second straight month in September, though indicators also pointed to stabilizing conditions from lows reached in August, according to a government survey released Monday.
- The official Purchasing Managers’ Index, released by the National Bureau of Statistics along with the China Federation of Logistics and Purchasing, printed at 49.8 on a 100-point scale, compared to 49.2 in August. The HSBC PMI survey, which tends to focus more on small-and-medium-sized companies, printed at 47.9, up slightly from its level of 47.6 in August.
- SocGen economist Yao Wei said in a note following the PMI release that she saw “some green shoots” in Monday’s data, as readings for four of the six major sub indexes showed “clear signs of recovery.” Production improved to 51.3 from 50.9 in August, while finished-goods inventories eased to 47.9 from 48.2. New orders ticked up a bit, with the subindex rising to 49.8 from 48.7 in August, while new exports also showed signs of life, rising to 48.8 from 46.6 in August.
Europe (still brownish shoots?)
- The final reading of the purchasing-managers' index, or PMI, for the euro-zone manufacturing sector edged higher in September but still signaled a 14th consecutive month of shrinking activity, data compiler Markit reported Monday. The index rose to 46.1 from 45.1 in August and was revised up from a preliminary estimate of 46.0, but remained below the 50 level, indicating a drop in overall activity from the previous month. "Despite seeing some easing in the rate of decline last month, manufacturers across the euro area suffered the worst quarter for three years in the three months to September. Output, order books and exports all continued to fall at steep rates …, causing firms to cut their staffing levels once again," said Chris Williamson, chief economist at Markit.
Data will be heavy in the U.S. this week with a host of key reports (but do they matter right now as the market is flirting with QEinfinity?)
- ISM Manufacturing – this figure has shown contraction (sub 50) for three straight months – not good. Consensus is for a uptick from August's 49.6 to 49.7. Which should allow Bernanke to go on 60 Minutes and say "green shoots" (wait didn't we this already a few years ago?)
- Construction spending: +0.6%
- 12:30 PM – Bernanke makes a wonky speech; look for hints for QE… oh wait, nevermind. It's infinity already.
- ADP Employment which has been way off from the government data the past few months: +140K expected vs last month's +201K(!)
- ISM Non Manufacturing – this was a bright spot last month (relatively speaking) and more pertinent to the U.S. economy versus the smaller manufacturing sectors. Still expansionary at 53.5 but that is expected to be lower than last month's 53.7.
- FOMC minutes from the Sep 12-13th speech, all the details of QE to infinity and beyond.
- Monthly payroll – expectations of +113K, versus +96K last week with unemployment rate flat at 8.1%. (keep in mind this figure depends on decades level lows of people in the work force) Word is Chicago's teacher strike may skew data.
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