By Greg Peel
The Dow closed up 23 points or 0.2% while the S&P gained 0.4% to 1639 and the Nasdaq added 0.6%.
Two bites of the cherry indeed proved to be one bite too many on Bridge Street yesterday as we limped to a steady but unspectacular close. The big move was made on Monday, which celebrated a return to expansion for Chinese manufacturing and was enough to cover similarly positive data from Europe. China's official services PMI for August came in at 53.9, down from 54.1 in July, but still in reasonable expansion mode. No one expected the RBA to cut and the RBA obliged.
The RBA statement was again similar to the month before, which was similar to the month before that, except for one glaring omission. What the RBA did not say is: "the inflation outlook could provide some scope to ease policy further, should that be required to support demand", as it did in August. Instead, it said that the monetary policy setting remained "appropriate" and that the board would "continue to assess and adjust policy as needed".
Subtle differences in central bank language are not to be dismissed. The RBA has deliberately removed the words "scope to ease" and reverted to "assess and adjust". The board also reiterated that the Aussie remains "at a high level" and "It is possible that the exchange rate will depreciate further over time, which would help to foster a rebalancing of growth in the economy".
Sounds like the RBA is hoping the Aussie will do the work. Or is this month's statement intended to be politically benign ahead of an election?
Wall Street returned from the long weekend and needed to catch up on all the positive global manufacturing data. There was also the delayed release of the US manufacturing PMI to consider, and it rose to a healthy 55.7 from 55.4. Construction spending in July rose a better than expected 0.6%. The Dow subsequently shot up 120 points from the opening bell.
Which proved the peak. Wall Street then fell, and fell rather sharply late morning when the president called for a rapid congressional vote on planned military action against Syria That's right ? Syria has not gone away after all. The Dow actually fell into the negative before limping to a slightly positive close, although the broad market S&P fared better with an ultimate 0.4% gain.
The US dollar index is 0.1% higher at 82.36 but the Aussie has shot up by a cent to US$0.9062. While the Aussie did gain ground on the back of the RBA statement, which as noted above was not as dovish as was expected even if a rate cut had not been expected, there was also no doubt a delayed reaction as US forex traders built in the improved Chinese data.
Elsewhere it was back to a war footing, just as we saw earlier last week. The US ten-year bond yield jumped 10 basis points to 2.85% and gold rose US$17.90 to US$1412.30/oz.
Base metals were mixed on fairly small moves but the oils are up again, with Brent rising US$1.34 to US$115.74/bbl and West Texas adding US91c to US$108.56/bbl.
Spot iron ore was unchanged at US$138.70/t.
Did bridge Street, and European markets, overdo it on Friday, swept away by manufacturing euphoria when Syria had not gone away? European stock markets were all down over half a percent last night and the SPI Overnight closed down a solid 38 points or 0.7%.
I noted last week that the historical response to potential war is sharply down on the threat, before recovering on the action. Last night one commentator suggested to Dow Jones "In general, markets go down until the missiles fly then rebound". The question is as to just how much arguing will be needed before the missiles do indeed fly, if at all.
It's service sector PMI day today for Australia, China (HSBC), the eurozone and UK, with the US to follow tomorrow. It's GDP day in Australia, with economists looking for a 0.6% quarterly gain for 2.5% annual growth, although it must be said the lead-in numbers have been a little disappointing.
Rudi will appear on Sky Business this evening at 5.30pm.