US PMI published by Markit Economics slumps to a three-month low as new order growth slows sharply

Sep 24 • Morning Roll Call • 3024 Views • Comments Off on US PMI published by Markit Economics slumps to a three-month low as new order growth slows sharply

In our weekly trends publication, published on Monday morning every trading week in our Trader’s Corner blog, we mentioned the importance of the rash of PMIs that were published this Monday. The European PMIs for manufacturing and services were, for the most part, positive. However, the USA print provided a mild shock as the PMI posted a third month of successive falls…

There are two issues that stand out with regards to this poor USA print. Firstly, that the criticism and scorn directed in the path of Ben Bernanke and the FOMC, for not tapering the asset purchase/monetary easing programme, was incorrect. Ben Bernanke can feel vindicated for not caving into the intense pressure from all angles. Secondly you’re left wondering; “at what point will the mountains of fresh debt and the expansion of the Fed’s balance sheet to record levels, lead to an undeniable, unbreakable, recovery?”

Morgan Stanley urges ‘contrarian’ investors to sell equities “until their hands bleed”…

Amongst the many publications that we peruse on a regular basis to keep our readers entertained and informed (hopefully), we came across this interesting note from Morgan Stanley’s economist Joachim Fels. He stated that; “if you happen to be a contrarian, you should probably sell stocks till your hands bleed, and then sell some more.”

However, Joachim was rather coy with regards to that permanent issue when selling equities; getting the timing just right. He’s right pointing out that when investors and stock holders are this confident we’ve probably reached a virtual overbought situation, that investors could mentally visualise by using a momentum indicator such as RSI, or stochastic lines in their ‘mind’s eye’. But without the critical call of “when” to sell his advice comes up short.

Joachim Fels;

“If you happen to be a contrarian, you should probably sell stocks till your hands bleed, and then sell some more. Why? All the five seasoned investors representing large pools of money on the panel I moderated at our 4th annual Global Economics & Strategy Day in Frankfurt on Friday were constructive on equities, and almost all of the around 200 investment professionals in the audience seemed to agree.

“The consensus on the panel was that the global economy continues to recover, interest rates will rise moderately, valuations are ok, earnings will accelerate, and European equities look more attractive than other regions. The only major divergence in view was over Japan, where the bulls argued “don’t fight the BoJ”, while the bears lamented the lack of structural reforms. Still, despite the broad overall agreement, it was a lively panel discussion that even touched on diverse topics such as cows, communists, and correlations – but that’s a story for another day and I only mention it because one of my favourite colleagues asked me to.

“While I have a strong contrarian streak, I confess I side with the consensus at the moment, along with our own strategists who are constructive on developed-market equities. The global macro backdrop remains supportive and is pretty much following the DM ‘Acceleration’, EM ‘Stabilisation’, and central bank ‘Accommodation’ script we laid out in our Back-to-School Global Macro Outlook three weeks ago. In fact, monetary policy now remains even more accommodative than we expected as the Federal Reserve’s FOMC surprised us and almost everybody else on Wednesday by not tapering its bond purchases.”

Market Overview

The DJIA closed down by 0.32% on Monday making a close on 2% fall since the close experienced on Thursday of last week, post the taper ‘non decision’. The SPX closed down 0.47% and the NASDAQ closed down 0.25%. Europe’s indices fared worse..

The STOXX index closed down 0.71%, the FTSE closed down 0.59%, the CAC closed down 0.75% and the DAX down 0.47%. The Syrian conflict sensitive Istanbul exchange closed down 2.05% on the day, whilst the Athens exchange, awaiting another troika visit, closed up 0.45% on the day.

Commodities sold off sharply in the sessions on Monday. ICE WTI oil was down 1.26% on the day at $103.43 per barrel. NYMEX natural was down 2.33% on the day at $3.60 per therm. COMEX gold slipped by 0.77% to $1322.0 per ounce, whilst silver on COMEX fell 1.19% to $21.66 per ounce.

Looking towards the openings in Europe and the USA the STOXX equity index future is down 0.82%, the FTSE down 0.53% and the DAX equity index future is currently down 0.54%. The DJIA equity index future is down 0.48%, with the SPX down 0.57% and the NASDAQ equity index future down 0.18%.

Forex focus

Sterling advanced by 0.2 percent to $1.6036 late in the London session after climbing to $1.6163 on Sept 18th, the highest level seen since Jan 11th. The U.K. currency gained by 0.4 percent to 84.13 pence per euro after appreciating to 83.53 pence on Sept 18th, the strongest performance since Jan 17th. Sterling has risen 5.6 percent in the past six months, the best performer among the ten developed-nation currencies tracked by Bloomberg’s Correlation-Weighted Indices. The euro has gained 4 percent, whilst the dollar has weakened by 0.3 percent.

The dollar weakened 0.5 percent to 98.85 yen late in the New York session, after dropping by 0.1 percent on Sept 20th. The greenback lost 0.2 percent to $1.3493 per euro. The yen advanced 0.7 percent versus the common currency to 133.37.

Australia’s dollar rose due to the data revealing that manufacturing expanded in China, the nation’s biggest trading partner. The preliminary reading for thePurchasing Managers’ Index from HSBC Holdings Plc and Markit Economics rose to 51.2 this month from 50.1 in August. The Aussie gained 0.4 percent to 94.31 U.S. cents.

The loonie gained 0.2 percent to C$1.0284 per U.S. dollar late in Toronto. It reached C$1.0182 per U.S. dollar Sept 19th, the highest level seen since June. One loonie currently buys 97.24 U.S. cents. The Canadian dollar gained for the first time in three days before a report on Tuesday which is forecast to show that retail sales rebounded in July, from the worst monthly decline witnessed so far this year.

Fundamental policy decisions and high impact news events that could affect market sentiment on Tuesday September 24th

The German IFO business index is published on Tuesday, expectations are for a print of 108.4 from the 106.5 the previous month. Canada’s core retail sales are published. Economists polled expect a result of 0.6% up from the ‘rogue’ print of -0.8% last month. The USA Conference Board consumer sentiment index is forecast to fall from 81.5 to 79.9. It’s a survey of about 5,000 households which asks respondents to rate the relative level of current and future economic conditions including labor availability, business conditions, and the overall economic situation.