A Close Look At Tuesday’s Key Market Events

A Close Look At Tuesday’s Key Market Events

$FXI, $FXP, $ASHR. $SPY, $QQQ, $IWM

It is the 1st day March and market participants will be shown the latest round of manufacturing purchasing managers index readings from a number of countries around the world.

The reports that will matter most from a potential market moving standpoint will be those of China and the US

Note: China’s February Manufacturing PMI 49.0 (expected 49.3; previous 49.4), Non-Manufacturing PMI 52.7 (previous 53.5), and Caixin Manufacturing PMI 48.0 (consensus 48.3; previous 48.4

I. China’s PMI readings for February

a. Official Manufacturing PMI, Monday, 29 February, at 8:00p EST
b. Caixin Manufacturing PMI, Monday, 29 February, at 8:45 p EST

Note: China’s February Manufacturing PMI 49.0 (expected 49.3; previous 49.4), Non-Manufacturing PMI 52.7 (previous 53.5), and Caixin Manufacturing PMI 48.0 (consensus 48.3; previous 48.4)

What has given life to the policy stimulus trade is a batch of weaker than expected manufacturing purchasing managers index readings (PMI) for February around the globe.

China, China, Japan, Spain, Italy, France, and the UK all posted manufacturing PMI readings that were not only below expectations, but were also below prior readings.  We deliberately listed China twice in the lineup because both the official PMI reading and the Caixin PMI reading fit that twin bill of disappointment.

For added measure, the official non-manufacturing PMI reading out of China was also lower than the prior month’s reading (52.7 Vs 53.5).

On a brighter note, the Eurozone’s unemployment rate of 10.3% for January is the lowest it has been since September 2011.  Then again, it’s still well above the 10-year low of 7.2% seen in March 2008, showing the rut of the Eurozone’s debt crisis still runs deep

Why it is important

  1. Concerns are festering about the economic slowdown in China. The manufacturing PMI reports offer the market insight into the level of business activity for China’s manufacturing sector and will either heighten or calm those concerns.
  2. The dividing line between expansion and contraction is 50.0
  3. The Caixin reading, which is formed from responses of purchasing managers working predominately at smaller firms in China, is seen as being the more informative data point for market participants since the government’s official manufacturing PMI report hinges on responses from purchasing managers at a lot of large, state-owned businesses

A reading below the prior month’s reading would fuel speculation Chinese authorities need to do more to stimulate growth, a decline from the prior month would also compound the concerns in global equity markets about the economic slowdown in China.

Those concerns could be tempered near term with a better than expected report.

A closer look

  1. The Caixin PMI report has been under 50.0 for 11 months running while the official manufacturing PMI report has been under 50 the last 6 months
  2. The Caixin PMI reading for January was 48.4, which was up from the December reading of 48.2
  3. The official manufacturing PMI reading for January was 49.4, down from 49.7 in December.

What is  in play?

China ETFs

  1. iShares China Large-Cap (FXI)
  2. ProShares UltraShort FTSE China 50 (FXP)
  3. Deutsche X-trackers Harvest CSI 300 (ASHR)

ETFs for regional markets

  1. iShares MSCI Japan (EWJ)
  2. iShares MSCI Australia (EWA)
  3. iShares MSCI Hong Kong (EWH)
  4. iShares MSCI South Korea Capped (EWY)
  5. iShares MSCI Singapore (EWS)
  6. iShares MSCI Taiwan (EWT)
  7. iShares MSCI Malaysia (EWM)
  8. iShares MSCI Emerging Markets (EEM)

Index ETFs

  1. SPDR S&P 500 ETF (SPY)
  2. PowerShares QQQ Trust (QQQ)
  3. iShares Russell 2000 (IWM)

Currencies

  1. USD/CNY
  2. USD/JPY
  3. EUR/USD

S&P Futures

Commodities

US Treasuries

II. The ISM Index for February, Tuesday, 1 March at 10:00a EST

Note:

Why it is important

  1. It is  the 1st economic release every month, providing timely information on business activity in the manufacturing sector
  2. The report can either build market confidence, or reduce confidence, in economic prospects
  3. The report’s dividing line between expansion and contraction in the manufacturing sector is 50.0
  4. This report will be released just after other purchasing managers’ reports out of Japan, China, India, Spain, France, Italy, the UK, and for the Eurozone as a whole
  5. With PMI readings from abroad, the ISM Index will provide the market some answers as to how the US manufacturing sector is faring on a comparative basis
  6. It offers information on the pace of new orders, production, employment, deliveries, inventories, export orders, and prices paid for manufacturers

A closer look

The reading of 48.2 for January was unchanged from 48.2 in December. The ISM Index is at its lowest mark since June 2009.

What’s in play?

Sector ETFs

  1. Industrial Select Sector SPDR (XLI)
  2. Materials Select Sector SPDR (XLB)
  3. PowerShares Dynamic Industrials (PRN)

Index ETFs

  1. SPDR S&P 500 ETF (SPY)
  2. PowerShares QQQ Trust (QQQ)
  3. iShares Russell 2000 (IWM)

US Treasuries (TBT, TLT, SHY, SCHO)

Fed Funds Futures

Currencies

  1. USD/JPY
  2. EUR/USD

III. Economic Reports

Tuesday’s economic data will include Construction Spending for January (consensus +0.5%) and the ISM Index for February (consensus 49.0) both cross the wires at 10:00a EST

Note: January Construction Spending: Actual 1.5%, consensus 0.5%, Prior 0.1%
February ISM Index: Actual 49.5, consensus 49.0, Prior 48.2

IV. Earnings Reports

Tuesday early, these companies are scheduled to report earnings to the market: DFRG, NEO, OXFD, SRI, TESO, WMC, ACRE, KATE, LXRX, FSTR, DCIX, STKL, JD, JKS, DLTR, DCI, BNS, MDT, AZO.

Stay tuned…

Paul Ebeling

 

Westbrook Radio

Add Comment