From Marc to Market:
Overview: Shockingly poor ISM data sent shivers through the market on Tuesday and hand the S&P 500 its biggest loss in five weeks and took the shine off the greenback. The S&P 500 reached a five-day high before reversing course and cast a pall over today's activity. All the markets were lower in Asia Pacific, with China and India closed for holidays. Europe's Dow Jones Stoxx 600 reached a two-month high yesterday before selling off sharply, and it has seen follow-through selling today, with the benchmark off around 1.5%. US shares are trading softly, and the S&P 500 is off about 0.7% in electronic trading. The rally in US bonds yesterday lifted Asia Pacific bonds today, but the rally stalled in Europe, where yields are mostly 3-5 bp higher, with the periphery holding in a bit better. The US dollar is showing resiliency after yesterday's drop and has edged higher against all major currencies, with the possible exception of the Japanese yen. Emerging market currencies are also under modest downside pressures. Gold is holding on to yesterday's gains but remains below $1485, while WTI is trying to end a six-day slide following news of a larger than expected draw of US inventories, according to the API.
Asia Pacific
The conventional wisdom assumes what it must prove when it comes to China and Hong Kong. It holds that Bejing's most pressing challenge is to quell the protest movement in Hong Kong. Is this true? Outside of some clumsy attempts to intimidate, Beijing appears to have done practically nothing as the demonstrations spill into the fourth month. China wins by letting Hong Kong deal with its own problems. It wins the way that one wins in paper-rock-scissors. One win by not losing. Hong Kong has the tools, including emergency powers that are like martial law. Direct intervention by China would risk HK's special trade status with the US. It would further alienate Taiwan, which holds national elections early next year. It would create martyrs for further struggles. Separately, but related, HK reported its August retail sales collapsed by a quarter in volume terms and almost as much in value terms (-23%) from a year ago. This was a much deeper contraction than economists expected.
North Korea reportedly tested at least one submarine-launched ballistic missile today. The US State Department requested that North Korea refrain from provocations. Apparently, hours before the test, North Korea agreed to resume talks with the US. The South Korean won is the weakest of emerging market currencies today, losing about 0.55%. The dollar rose 1% last week against the won and is up about 0.85% this week. Poor economic data and prospects for another rate cut in the middle of the month also weigh on the won. The US dollar appears poised to the test the KRW1220 area, the 3.5-year high seen in August....
We usually leave Mr. Chandler's comments on the USA for after-the-jump, an Easter egg for enterprising reader to discover but today we'll post the first paragraph, not having seen him this adamant about an indicator (ISM) in quite a while:
...America
There is little positive one can say about yesterday's ISM report. Perhaps the best that be said is that it was not confirmed by the PMI, which actually ticked up from the flash (51.1 vs. 51.0) and an improvement from the 50.3 reading in August. The details also diverged. The ISM reported a contraction in employment and new orders, while the PMI reckons both rose. US data surprise models were elevated, and the ISM was the anomaly. That does not mean that it is wrong, but it is picking up a sharp deterioration that is not evident in the other data. The ADP estimate of private-sector jobs is the main data point today. It is expected to show employment slowed by 50-55k to 140k. That would bring it more into line with the non-farm payrolls, which rose a disappointing 130k in August and was expected to rise to 140k-150k before this week's reports.
The S&P 500 posted an outside down day yesterday. In doing so, it filled the gap created by the sharply higher opening on September 5....
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