CMC Markets Weekly Report

Stocks in the U.S. gave up their earlier rally to end mixed on the first day of the fourth quarter, with the Nasdaq closing in negative territory, but a better-than-expected manufacturing report helped limit losses.

Stocks in the U.S. gave up their earlier rally to end mixed on the first day of the fourth quarter, with the Nasdaq closing in negative territory, but a better-than-expected manufacturing report helped limit losses.

The Dow Jones Industrial Average gained 77.98 points, or 0.58 percent, to close at 13,515.11. The S&P500 edged up 3.82 points, or 0.27 percent, to end at 1,444.49 whilst the Nasdaq slipped 2.70 points, or 0.09 percent, to finish at 3,113.53.

The manufacturing sector expanded for the first time since May, with the ISM index rising to 51.5 in September from 49.6 in August. Economists had expected a reading of 49.7, according to a Reuters survey. A reading above 50 indicates an expansion.

The ISM survey followed a string of weak regional surveys last month. The Chicago PMI, a survey which measures business activity in the Midwest, showed its first contraction since 2009 in September.

Meanwhile, Federal Reserve Chairman Ben Bernanke defended the central bank’s bond-buying stimulus program, speaking at the Economic Club of Indiana, saying its actions were necessary. Bernanke added that the Fed does foresee a recession but that growth was too slow to bring down the nation's jobless rate.

Overnight, PMI data from China and the eurozone showed some signs of stabilization though both remained firmly in contraction mode.

European shares ended sharply higher as worries over Spanish banks eased. Investors have been watching to see if Moody's would downgrade Spain's credit rating, but the ratings agency said Spain's bank recapitalizations were credit-positive for the country.

Meanwhile, the eurozone PMI was revised up to 46.1, up from a preliminary estimate of 46 and from a reading of 45.1 in August. Still, the reading was below 50, which indicates a contraction. The improvement helped the euro stabilize against the dollar.

And China’s official PMI rose to 49.8 in September from 49.2 in August, but it was the seventh straight quarter of slowing growth for the world's second-largest economy.

Also on the economic front, construction spending slumped by the most in a year, falling 0.6 percent in August to an annual rate of $837.1 billion, according to the Commerce Department. Economists had expected a gain of 0.5 percent.

In the week ahead, yesterday was a public holiday in NSW, Western Australia and South Australia. China was also closed and will be closed through Friday for Golden Week holidays.

In Australia, we'll see the RP Data-Rismark house price index today, new home sales and the trade balance on Wednesday, building approvals and retail sales on Thursday, and the construction PMI on Friday. The RBA is also due to make a rate decision this afternoon with majority of economists predicting rates to stay at 3.5 percent.

Aside from its PMIs released yesterday, it is also expected the US will release vehicle sales today and factory orders and chain store sales on Thursday. The real focus nevertheless will be on the ADP private sector jobs report on Wednesday and non-farm payrolls on Friday.