The Overnight Report: A Time To Sell

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December 3, 2013 9:38 AM EST

By Greg Peel

The Dow fell 77 points or 0.5% while the S&P lost 0.3% to 1800 and the Nasdaq dropped 0.4%.

There was a raft of economic data out in Australia yesterday, none of which could be called responsible for a 40 point fall in the ASX 200. The impetus for that fall had been building all last week and simply reflected the fact that if there's no reason to go up, markets tend to go down.

One could argue that a surprise fall in the November manufacturing PMI to contractionary 47.7 from a pleasingly expansive 53.1 in October spooked the market, or that a 1.8% fall in building approvals and a mere 0.1% rise in house prices signal the end of the housing recovery. But for some reason Australian PMI numbers are very volatile compared to the rest of the world (smaller sample set one presumes), while building approvals are up 23% for the year and a slowdown in house price appreciation kills off any argument about a dangerous bubble. September quarter company profits rose 3.9% to be up 8.9% for the year.

CPI inflation rose to an annual 2.4% from 2.1% in November according to TD Securities, which allows room for another rate cut, but on balance there is no pressing reason for the RBA to cut today. Most importantly, the Aussie has come back off its recent highs.

Yesterday's numbers saw the Aussie jump up initially, but the game was up once we moved time zones to the US. I suggested yesterday that this week's US jobs numbers will no doubt reignite the tedious tapering debate but we haven't had to wait that long, with a jump in the US manufacturing PMI to 57.3 from 56.4, to mark the fastest pace of growth since April 2011, proving enough to bring early tapering back into the frame. How do we know this? Because gold is down US$32.70 to US$1219.70/oz.

In other PMI news, HSBC's measure on China showed a fall to 50.8 from 50.9 but this is better than last week's 50.4 flash estimate. The eurozone pleased with a rise to 51.6 from 51.3 while the UK continues to power on, showing a rise to 58.4 from 56.5.

The US was also focused on shopping last night, with the traditional "Cyber Monday" following on from Black Friday. Cyber Monday is simply the internet equivalent in terms of omigod discounts on the day. Wall Street will be hoping the internet shopping results are better than the real thing was on Friday, with reports of increased foot traffic giving way to the ultimate cash register numbers which showed a 3% fall in takings from last year.

Retail disappointment did not detract from the PMI's influence on tapering expectations. The US dollar index rose 0.3% to 80.91, gold tanked as noted, silver fell 3.7% and the US ten-year bond yield jumped 6 basis points to 2.80%. The Aussie rose as high as 91.60 yesterday but is now down 0.3% since Saturday morning at US$0.9105.

And of course the US stock indices had a weak day, with tapering expectations adding to a general desire to lock in profits after a strong year, and notwithstanding the "tax selling" period that is now upon us.

Strong global PMI numbers should be a positive for base metal prices but then base metal prices have simply been wallowing for months. A stronger greenback works against any potential gains so all bar nickel were down last night, with copper down around 1%.

No such timidity in oil markets, where the dollar's rise was ignored against implications of stronger manufacturing for energy demand. Brent crude rose US$1.78 to US$111.47/bbl and West Texas rose US$1.20 to US$93.92/bbl.

Spot iron ore is up US40c to US$136.80/t.

More weakness on Wall Street has translated into a nervous local futures market with the SPI Overnight down 29 points or 0.5%.

The RBA will hold a policy meeting today and all economists surveyed by Bloomberg have said no change. When the view is unanimous it usually means a cut is in store but this time I don't think so.

September quarter net export numbers and the current account are out today along with October retail sales. Beijing will release China's official service sector PMI for November.

Brambles ((BXB)) will hold a shareholders meeting to discuss the upcoming Recall demerger.

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