Better-than-expected manufacturing data in the Eurozone and the US lifted sentiment, offsetting concerns over the economic outlook after releases of disappointing Chinese and Japanese data and sending European bourses and the Wall Street higher. The market was further lifted as Fed chairman Ben Bernanke defend the central banks’ quantitative easing policies, stating that long-term interest rates would stay low even the economy has shown strength. Wall Street gained with the DJIA and the S&P 500 indices adding +0.58% and +0.27% respectively. In the commodity sector, crude oil prices firmed with the front-month WTI contract gaining +0.31% and the Brent contract largely flat. Gold approached 1800, rallying to as high as 1794.4 before ending the day at 1783.3, up +0.53%.
The US ISM manufacturing index added +1.9 points to 51.5 in September.11 out of 18 industries covered showed expansion during the month. The details were also positive with the new orders index soaring +5.2 points to 52.3 and the employment index up +3.1 points to 54.7. Comments from respondents were mixed, though appeared more optimistic. While some said that "sales have tanked over the last two months…Not very optimistic for the near-term future", others believed that the "so-called 'slowdown' was a summer thing. September brings with it increasing requirements and business". At a speech at the Economic Club of Indiana, Chairman Bernanke affirmed that aggressive stimulus would be sustained even after the US economy strengthened. He stated that the central bank expects "that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economy strengthens".
At the other side of the Atlantic, the final Eurozone PMI in September climbed +0.1 point higher to 46.1. Readings for both Germany and France were also revised higher slightly but the French reading was still down -3.3 points from the August reading. The Spanish PMI climbed to a 6--month high of 44.5 while that of Greece stayed largely unchanged at 42.2. Last week, the Spanish central bank announced after the stress test that the country’s banks need 53.75B euro for recapitalization. While the move I welcomed by the IMF, Moody’s said that the amount may not be sufficient for the banks to maintain stability in "adverse and highly adverse scenarios". According to the rating agency, "if market participants are skeptical about the stress test, negative sentiment could undercut the government's efforts to fully restore confidence in the solvency of Spanish banks".
Today, the RBA announced to cut the cash rate by -25 bps to 3.25%. Lower commodity prices, China’s growth slowdown and persistent strength in Australian dollar have weighed on the economic prospect of Australia.
Oil and Gold Reports contributed by Oil N' Gold