By Greg Peel
The Dow closed up 77 points, or 0.6%, while the S&P rose 0.3% to 1444 and the Nasdaq slipped 0.1%.
Yesterday was the first of the month, which means global manufacturing purchasing managers' index (PMI) day. It was also the first day of the new quarter, in which traders and fund managers open their new positions having squared off for the close of the previous quarter. It is not unusual for the first day to be positive, but the current climate is one in which funds are net underweight equities, implying a potential need to catch up.
For Wall Street, the impetus to buy came right from the get-go. The US manufacturing PMI surprised economists by rising to 51.5 in September from 49.6 in August, implying the sector is expanding again for the first time since May. Combining this surprise result with first day stock buying saw the Dow up 161 points by 11am.
Not only did the PMI excite Wall Street, it was enough to send the UK and German markets up around 1.5% as well. Yet the UK and eurozone manufacturing PMIs were not themselves inspiring. The eurozone PMI rose to 46.1 from 45.1 which at least implies a slight slowing in the rate of contraction, but September still marked the fourteenth straight month of contraction. Meanwhile, recent UK data had hinted that perhaps the worst of the British recession was now in the past, until the September PMI fell back again to 48.4. August's 49.6 result suggested the UK sector might be about to return to expansion.
Beijing's official PMI came in at 49.8, which was a slight improvement on August's 49.2 and relatively consistent with the earlier HSBC result. But if Australia is to take any solace from the fact Chinese manufacturing might just be knocking on the door of a return to expansion, the local number would have dampened any enthusiasm. Australia's PMI fell to 44.1 from 45.3 in August ? the seventh straight month of contraction and a steep acceleration in the pace of that contraction.
It's over to the RBA. Today sees the central bank make its monetary policy decision for the month, and the cries for a rate cut are now only louder after the PMI result. Economists are becoming more split on whether Stevens will deliver today, having previously assumed November was the obvious choice.
Last night also saw the release of US construction spending for August, and the result here was mixed. Overall spending fell 0.6% in the month, but within that figure spending on residential housing rose 0.9%, again adding fuel to the housing rebound fire.
It was all going swimmingly on Wall Street until around about lunch time when Ben Bernanke made a televised speech to the Economic Club of Indiana, and held a Q&A. Bernanke said he did not believe the US economy would fall into recession but he remained very concerned about the slow pace of growth. GDP growth of 1-2% is not enough to reduce unemployment, he declared.
The implication is thus that the Fed will keep pumping in more QE, which heartens some on Wall Street, but not those who would rather see the US economy stand on its own two feet and who despair what the longer term effects of QE may be with regard to inflation. Either way, Wall Street began to drift off after the Q&A session, whether because of Bernanke or simply because there are still plenty of punters who believe Wall Street is due a correction. There's still the fiscal cliff to negotiate and before that there's the earnings result season beginning next week.
The US dollar index was relatively steady last night at 79.82, allowing gold to slip a little to US$1775.20 and Aussie to US$1.0365. Base metals nevertheless joined in the US PMI euphoria and closed while Wall Street was still close to its highs, hence gains of 1-2% were posted for all bar zinc.
Oil decided to take a breather for once, however, with both little changed at US$112.19/bbl for Brent and US$92.25/bbl for West Texas. Energy traders have been turning their attention to the US natural gas price of late, which has decided to go for a bit of a run. Last night it jumped another 5% to US$3.48/mmbtu.
The SPI Overnight was up 19 points or 0.4%.
Iron ore price watchers might like to note that the China spot price has remained unchanged at US$104.20/t for three days, and given China is on holiday all week it might just stay there for longer.
As noted, the RBA will make its rate decision this afternoon, and the RP Data-Rismark house price index for last month will also be released.