Scoreboard: Slippery dip

Chinese industrial production spooked Australian equities and the dollar, while markets largely ignored Europe’s strong business activity.

A day or so after data shows that Chinese industrial production – and growth more broadly is strong – a little known and not very effective survey comes out yesterday showing a dip.

Interestingly, it was only equities and the Australian dollar that got hit; commodities were mixed. We are only talking about a 0.9-point downside move on HSBC’s ‘flash’ PMI to 49.6 from 50.5. Statistically, that’s not very much above noise, but there were some big moves on it. What is interesting is that the market seemingly ignored the 1.2-point gain in the European PMI to 53.9 from 52.7.  This is an important signal to investors. Traditionally, when the market has been hit with these kinds of asymmetric responses, it’s a sign that not all is well. Fear tends to dominate and fundamentals are ignored.

Moves were fairly wild. We saw it in our session when the All Ords finished about 1 per cent lower and the Aussie dollar tumbled below 0.88 cents, where it has since stayed. It lost another 30 pips to be at 0.8762 at the time of writing. Some emerging market currencies also took a hit – the South African rand, Brazilian real – any viewed to have some attachment to China.

There was also some selling of the US dollar. The dollar index was off 0.9 per cent. Most of the buying seemed directed at European currencies:  the sterling rose 70 pips to 1.6624, while the euro was the key outperformer for the session, up over 1.5 big figures to 1.3693.  The Japanese yen slipped to 103.21 from 104.48.

Moving over to equities with an hour left to trade, the S&P500 is off 1.2 per cent (1823), the Dow is 211 points lower (16161), and the Nasdaq is nearly 1 per cent lower (4201) with European markets down by a similar magnitude of - 0.8-1 per cent.

For the remaining price action, we saw the US 10-year yield off about 4 basis points to 2.78 per cent., while commodities were mixed. Gold was up $23 to $1262, silver was up 1 per cent, although copper fell 1.7 per cent. Crude was mixed with Brent down 0.7 per cent ($107.4), but WTI up 0.6 per cent ($97.3).

On the data front, US data was generally upbeat and included a 1 per cent gain for existing home sales in December. Then, initial jobless claims held steady at a low 326,000 in the week to January 18.  The Kansas City Fed manufacturing Index rose to 5 in January from -3, while the Chicago Fed activity index fell to 0.016 from 0.69.

As for the day ahead, there will be data on Canadian inflation and loans for house purchase in the United Kingdom. 

Adam Carr is a leading market economist. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.

Follow @AdamCarrEcon on Twitter.

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