Daily Market Color

Equities and Treasuries Both Decline On Light Volume as China and ECB Weigh

Stocks and Treasuries both sold off marginally as investors weighed a rally in commodity prices against weak global manufacturing data.  Volumes are light due to the Jewish holiday and Autumn Equinox in Japan, but there were a variety of economic releases for markets to digest.  Chinese manufacturing continued to disappoint, contracting at its fastest pace in 6 years, during the depths of the financial crisis.  The Caixin-Markit Flash PMI fell to 47.0 in September, down from 47.3% in August and below the 47.5 expected.  The components of the report were also weak, as output, new orders, new export orders, and employment all fell at a faster pace.  Beijing has insisted that the recent volatility in Chinese stocks is not representative of the strength of the broader economy, but it’s hard to ignore the persistent weakness in the factory sector and the impact it will have on growth.

Separate reports showing manufacturing data in the Eurozone and United States weren’t quite as alarming, but they also didn’t indicate robust factory sectors.  The Eurozone composite PMI fell to 53.9 in September, however it showed new orders reached a five-month high.  The French composite reading of 51.4 was the best result since June, with both components coming in just above the expansion line of 50.  ECB President Draghi acknowledged that the macro environment is “more challenging” with renewed downside risks, but said they won’t hesitate to act if deemed necessary.  The US Manufacturing PMI showed no month-over-month change, remaining at 53.0, its weakest level in nearly two years.

In his October Investment Outlook report, bond guru Bill Gross urged the Fed to “get off zero and get off quick” with regards to interest rates.  Gross feels that it’s worthwhile to experience some near-term market volatility in exchange for longer-term stability.  He said that the zero bound levels are harming the real economy, the middle class, and insurance company and pension fund business models.

 

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