SCOREBOARD: Aluminium dead-weight

Global equities dropped overnight following Alcoa's aluminium demand downgrade and the IMF's economic forecasts.

Not the best of sessions. Global equities took bit of a tumble overnight after Alcoa cut its forecast for aluminium demand on the basis of slower Chinese growth and Chevron warned that third quarter earnings would be substantially lower, although some of that was due to Hurricane Isaac. I guess the other reason it was ‘risk off’, is because of another downbeat report the IMF issued. They suggested that unless the European’s took action to solves the crisis (I kind of thought they had – ESM anyone? ECB?) then Europe’s banks would have to sell many trillions of euros of assets. Ohh yes and a ratings agency threatened more European downgrades.

Not good and equities were belted as a result. In Europe the Dax was down 0.4 per cent, the CaC was off 0.5 per cent and the FTSE was 0.6 per cent lower. Yet amid all the doom and gloom and fears of another global slowing, data continue to come out and show why, in fact, the global economy is accelerating. French and Italian industrial production surged in August, rising 1.5 per cent and 1.7 per cent respectively after a gain of 0.6 per cent and a fall of -0.1 per cent. I reckon that more than anything should have buttressed markets, but maybe the run prior had been too hard. Fact that it was completely ignored is odd though – recall recent US data also showing an upswing in place.

Cue Wall St and after a little bit of indecision early on, the offer came on hard and stayed there. As I write the S&P500 is down 0.6 per cent (1432), the Dow is 129pts lower (13343) and the Nasdaq is down 0.5 per cent (3048). Not even a comparatively upbeat Beige Book could reverse the flow – earnings the sole focus. Overall the Beige Book suggested that "economic activity generally expanded modestly” since the last report. Improved conditions were noted in manufacturing, residential real estate and loan demand was noted as steady to stronger. Recall US consumer credit data shows loan demand surging. Otherwise employment conditions were noted as little changed since the last report – employment growing only slightly, although that is at odds with BLS data showing strong employment growth.

So no love for equities and not much more for commodities, especially crude which fell 1.1 per cent at the time of writing to $US91.38. Metals were mixed around zero though with gold at $US1765 (up smalls) and copper down 0.01 per cent. As for forex, the Australian dollar was little changed at 1.0232, while euro was up 45 pips to 1.2898. The British pound otherwise rose a touch to 1.6009 while the yen is at 78.14.

Finally for the price action, US treasuries swung around, selling off initially the 10-year yield hit a high of 1.75 per cent or up 4bps from 1630. They then rallied as stocks sold off and into the close the 10-year yield was down about 3bps to 1.688 per cent. The 5-year was then at 0.65 per cent while the 2-year was at 0.26 per cent. Aussie futures were up a tick or three, 3s at 97.64 and 10s at 97.050.

Not much otherwise. One thing worth noting is that the Italian government announced a tax cut for low income earners, although they also cut back on public spending.

For the market today, the SPI suggests stocks will fall by about 0.6 per cent and the calendar shows that employment is the main data release for Australia. The consensus is that 5,000 jobs were created in September with the unemployment rate expected to rise to 5.3 per cent. Other data for our region includes machine tool orders from Japan but then there is little until tonight when it’s worth keeping an eye on initial jobless claims and the US trade balance. We also see import prices, the monthly budget update and a speech from the Fed’s Plosser. In Europe there isn’t much, we get the final estimate of German CPI for September.

Hope you have a great day…