Asian and Pacific Rim markets moved lower after China’ flash PMI fell to a six month low. Once again investors are fearing a slowdown in the Chinese economy which could be bad for the entire region.
HSBC’s flash PMI for January came in at 49.6. Last month’s reading came in at 50.5. Any number below 50 shows contraction. There are probably holiday distortions in this number but it definitely shows there is a problem in the world’s second largest economy. With rising interest rates and aggressive reforms, a strong pick u is not vey likely. Investors are also watching monthly economic data from China and the interest rate decision from the Philippines.
The Dow Jones and other U.S. markets were mixed overnight on mixed corporate earnings numbers. There was some concern after IBM Q4 revenues fell off, missing the mark.
STOCKS
Overnight, the DJIA lost 41 points to close at 16,373.34. IBM (NYSE: IBM) led losses, falling over three percent, as quarterly revenue numbers missed the mark. The S&P 500 was marginally higher by 1.06 points to finish at 1,844.86. The materials sector was the weakest and the energy sector led gains. The Nasdaq Composite was up 17.24 points to close at 4,243.
The US Dollar edged a bit higher against its major trading partners. This comes on the heels of the US 10 Year yield which rose 3 basis points to 2.86 percent. More on this in the currency section below.
In Asia, this morning, the Nikkei is currently up 0.24 percent as data showed business sentiment was up for the third straight month in January. Also a weakening yen helped sentiment. The USD/JPY Forex pair is approaching 105 and is helping shares of exporters.
The Shanghai Composite is down 0.5 percent but still above a key level at 2,030. Even though the poor PMI data is hurting sentiment, losses are being capped as the People’s Bank of China (PBOC) is injecting cash into the financial system.
The Australian ASX 200 is down one percent thanks to the PMI from China. Mining stocks are being hit hard, as investors fear a slowdown in China. These companies are now at their lowest levels in six months. The AUD is down 0.6 percent versus the Dollar.
CURRENCIES
Higher Treasury yields has propped up the Dollar for the most part.
EUR/USD (1.3547) we are noticing a bear flag on our charts at the current levels. We are also at a strong resistance level now. We should expect a dup to 1.34/.3450 at this point. Any rallies will be limited to 1.3590/1.36 area.
USD/JPY (104.39) is recovering from 103.65 and reinforcing our bullish tone for 105. We could target 107 if we break 105.40/50. AUD/USD (0.8796) failed at 0.9101 and has moved lower. We are range bound from 0.8705 to 0.89 now.
COMMODITIES
The metals are moving lower today.
Gold (1234.30) is falling through supports. We are now looking to test 1225 on a break below 1230. If we can hold, then maybe we case a recovery to 1250. Silver (19.73) has fallen through 20 after being rejecting at 20.30/.50 area. We are still consolidating from 19.10 to 20.10. If 19 holds we could bounce back to 20.50. Copper (3.3205) has fallen thanks to the poor PMI from China. We are targeting 3.30 now. If it holds we could recover back to 3.35. Any rally to 3.40 is not very likely now.
TODAY’S OUTLOOK
Busy day on the US economic docket. At 8:30 EST we get initial jobless claims, manufacturing PMI 30 min later, at 10 am we get existing home sales data and leading economic indicators. These will be watched as we are leading up to next week’s FOMC policy meeting.