By Greg Peel
The Dow fell 90 points, or 0.6%, while the S&P lost 0.8% to 1545 and the Nasdaq dropped 1.0%.
After all the angst generated by a weaker Chinese manufacturing PMI in February, HSBC's flash estimate for the March PMI indicates a jump to 51.7 from February's 50.4. Every year Chinese data recover post the New Year month. The result was enough to send the Aussie up 0.6% to US$1.0439.
Last night also saw another slew of positive US data. The equivalent flash manufacturing PMI rose to 54.9 from 54.3. Sales of existing homes jumped 0.8% in February to their highest level since November 2009. The Philadelphia Fed manufacturing index has shot up to plus 2.0 this month from minus 12.5. The Conference Board leading economic index grew 0.5% in February.
All of the above should have been enough to finally send the S&P 500 through its 2007 all-time high last night, but it wasn't to be. Once again the wet blanket is Europe.
The eurozone flash manufacturing PMI has fallen to 46.6 from 48.2 to indicate accelerating contraction. Most worrying is Germany's individual result, which has shifted from expansion to contraction at 48.9 this month. The eurozone composite PMI, which nets manufacturing and services, has fallen to 46.5 from 47.9.
It's not good news when once again the viability of the common currency bloc is in question. The Cypriote government is now racing towards a deadline to come up with another means of raising the E5.8bn required domestically, other than the taxing of all deposits, if the eurozone is going to stump up E10bn for a Cyprus bail-out. The eurozone finance ministers will hook up by phone next Thursday night. In theory, a failure By Cyprus to secure the funds could result in an exit from the euro. But as we've seen with Greece, euro exits are not favoured.
The latest news is that the Cypriote central bank is seeking legislative power to shut down domestic banks ? a power most central banks already have as part of their role. Once attained, the central bank will move to shut down one bank in particular, split it into "good" and "bad" banks, and merge the good bank, which includes deposits, into another Cypriote bank. The bad bank will be ring-fenced and its toxic assets sold off gradually. As part of this bank consolidation move, deposits under E100,000 will be protected. Further consolidations may come.
The move will reduce, but not fully satisfy, the E5.8bn requirement. The victims will be those with investments in the bank being split, including deposits above E100,000, as well as bank staff who will lose their jobs on the merger.
Aside from the global gloom offered up by a eurozone economy sinking deeper into recession (and not mention a UK economy facing a triple-dip), the Cypriote dilemma remains one of fear of precedent. At this stage, and notwithstanding this new bank consolidation push, the banks in Cyprus will re-open on Tuesday and face a run. The world fears such a run may scare bank depositors in the larger Club Med economies to also withdraw all their savings just in case.
Wall Street was not panicked, but it was weak all session despite the strong US data and more positive signs from China. The US dollar was again relatively flat at 82.80 despite another slip in the euro. There was another slight shift into US bonds and gold rose US$9.50 to US$1615.50/oz.
Base metals were mixed on small moves, while the oils are currently conducting a bit of a "one day up, next day down" game, with last night seeing Brent fall US$1.24 to US$107.47/bbl and West Texas fall US$1.03 to US$92.47/bbl. Spot iron ore rose US10c to US$134.20/t.
The SPI Overnight fell 35 points, or 0.7% on the new June front-month.
'Tis Friday, and next week is a short trading week ahead of the Easter break. Perhaps it's a good day to sell.