If anything, the sharp falls on US and European markets overnight shows us how weak confidence is in the immediate direction for shares.
US stocks slid precipitously overnight. All three major US measures – the Dow, the S&P 500 and the Nasdaq all lost more than 2% at one stage with the Dow dropping more than 300 points during afternoon trading.
The immediate catalyst was the sharp fall in the monthly survey of manufacturing activity in the US, and before that a fall in China’s monthly survey of its services sector.
And yet the report still showed US manufacturing was expanding – though at a slower rate, with the most immediate cause the one off cold weather across much of the country last month. the transitory nature of the main reason was ignored by investors more worried about taking profits.
The Dow closed down 2.1%, the Nasdaq lost 2.6% and the S&P 500 shed 2.3%. Seeing the Dow lost more than 5% last month and the S&P 500, around 3.5%, it’s been a poor start to February.
The Dow had its seventh triple digit loss for 2014 so far, losing 326 points, its biggest loss since last June (in the wake of the Fed’s tapering talk which had emerged the month before).
Investors said the fall was indiscriminate, although telecoms stocks were hit hardest of all. Banks and other financials also were sold off with losses from 2% to more than 4.5%, pointing to more pressure on our financials, especially the big four banks.
Another weak week of trading and the US market could hit correction territory with a 10% loss at least. Tokyo’s Nikkei fell sharply yesterday and is already in correction territory
It fell back through the 300 point level in the early afternoon, regained that level, then fell again in the last half hour of trading, Nasdaq’s loss rose past 100 points for the first time in more than two years.
February starts with a flighty Wall Street sell off and a big slide here today
Gold performed more historically with a $US17 gain to $US1,257 in New York, but oil fell. US interest rates again fell as investors retreated to the sidelines and the US 10 year Treasury bond yield fell to 2.59%, the lowest for several months.
The Aussie dollar remained mostly steady, trading around 87.50 US cents in early Asian trading.
Our market will start with yet another big loss – simply because the sharp falls on Wall Street were so unexpected.
There are suggestions from the share price futures market that the ASX 200 could start with a loss of 99 points – or close to 2%. That will mean losses of well over $A30 billion if sustained during the day.
Coming after a day yesterday when the market battled back from a big early fall, to end only two to three points lower, the trading on Wall Street in particular will crush that modest rebound.
That the most resilient part of the US markets – tech stocks, developed a bad case of the jitters – tells us just how febrile US investor sentiment is at the moment.
European markets lost between 0.6% (London ) and over 2% in Italy. That was despite an encouraging report on eurozone manufacturing which showed the expansion was continuing.
Investors shrugged off the good news from Europe and focused on the sharp fall in the US survey – to a reading of 51.3, from 56.5 in December and went aggghhhh!
Yet it is clear from comments in the report, and from remarks from car giants, Ford and General Motors in their monthly sales reports, that the record cold and bad weather across much of the East, south and Midwest, played a major part in the fall.
"A number of comments from the panel cite adverse weather conditions as a factor negatively impacting their businesses in January, while others reflect optimism and increasing volumes in the early stages of 2014," said Bradley Holcomb of the ISM.
The index was only expected to fall to around 56, but instead it lost more than five percentage points – and the immediate kneejerk reaction was that the US economy had slowed sharply.
The report included comments such as "Good finish to 2013, but slow start to 2014, mostly attributed to weather," said an executive at an energy company while an executive at a firm that makes metal parts said: "Poor weather impacted outbound and inbound shipments."
And an economist in the US at TD Securities, Millian Mulraine, was quoted in media reports saying "This report confirms the weakness seen in other economic indicators (such as the December jobs report) which has been attributed in large part of the unseasonably cold weather over the past two months."
And while Chrysler reported an 8% rise in sales, Ford’s 7% slide was blamed largely on "difficult weather in our largest sales regions" by a senior Ford sales executive. And GM’s 12% drop was blamed on the weather which kept buyers away from car retailers in month.
The poor manufacturing survey will almost certainly be followed later in the week by a weak report for services – and the January jobs report on Friday night, our time, is starting to look like a repeat of the weak December report where the cold weather was blamed for the slowing in new job numbers.
The manufacturing report’s weakness played into investors concerns about the strength of the current US 4th quarter earnings season and whether share prices on Wall Street are too high and valuations, at the moment, stretched.
