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China flash PMI drop stops commodity rally cold

CMC Markets

Commodities had been climbing this week after improved lending data sparked speculation that China’s economy was improving which could increase the outlook for resource demand. Overnight Chinese flash PMI turned lower and came in below soft expectations confirming continued slowing. This news sent many Asia Pacific indices sharply lower overnight and took the wind out of commodities’ sails sparking retreats in copper and crude oil. Gold and silver also dropped back today as part of their recent gains had been based on increased Chinese demand for precious metals. A rebounding USD has weighed not only on metals but also on paper currencies which have been falling today with NOK, AUD and SEK leading the declines. JPY has outperformed suggesting some defensive movement of capital while CAD has stabilized after yesterday’s big takedown. European manufacturing PMI data also came in below expectations while flash service PMI numbers were mixed, dragging indices in the UK and across the continent lower as well. This downward momentum appears set to continue into US trading today. Even Canada’s hot streak may come to an end today with commodity falls weighing on other resource weighted markets. Australian stocks finished flat while the FTSE is down on the day so far. Reduced liquidity has also been weighing on stocks throughout the last 24 hours. Yesterday’s FOMC minutes suggested that members view a $10B taper at each meeting this year as the default option unless something really bad happens. Meanwhile, the PBOC removed some of the emergency liquidity it had recently put into the market in what was also essentially a tapering move. While the removal of emergency liquidity can be seen as a positive for the longer term, it has led to rough periods of adjustment for stocks in recent years. Big earnings for Tesla and others plus a big deal for Facebook could keep individual shares active today. We may also see more action in energy commodities later in the morning as inventory numbers roll out. Corporate News Tesla Motors $0.33 ex items vs street $0.22, Q1 production guidance 7,400 cars vs Q4 6,587. Full year 2014 expects to deliver 35,000 cars and raise production from 600 cars/week to 1,000, supply of battery cells biggest bottleneck. Shares up over 10% in early afterhours trading toward $220. Confirmed they talked with Apple but would not reveal about what. Facebook agrees to purchase WhatsApp, a moving messaging company for $19 billion through a combination of $4B in cash and $15B in stock Wal-Mart $1.60 vs street $1.59, guidance $1.10-$1.20 vs street $1.23, accelerating rollout of small stores to 270-300 this year from 120-150 previously Loblaw $0.65 vs street $0.55 Tim Hortons $0.80 vs street $0.76, guides 2014 to $3.17-$3.27 vs street $3.32, 23% dividend increase TransAlta $0.00 vs street $0.19 TransCanada $0.58 vs street $0.60, raises dividend 4% Economic News The Peoples Bank of China removed CNY 60B in 14-day reverse repo liquidity today. Economic reports released overnight and this morning include: China flash PMI 48.3 vs street 49.5 France flash manuf PMI 48.5 vs street 49.6 France flash service PMI 46.9 vs street 49.4 Germany flash manuf PMI 54.7 vs street 56.3 Germany flash service PMI 55.4 vs street 56.4 EuroZone flash manuf PMI 53.0 vs street 54.0 US flash manufacturing PMI street 53.0 US consumer prices 1.6% as expected up from 1.5% last month US jobless claims 336K vs street 335K Brazil unemployment rate 4.8% vs street 5.1% and previous 4.3% Germany producer prices (1.1%) vs street (0.8%) France consumer prices 0.7% vs street 0.8% UK CBI trends total orders 3 vs street 6 and previous (2) Singapore GDP 5.5% vs street 5.2% vs previous 4.4% NZ producer input prices (0.7%) vs previous 2.2% NZ producer output prices (0.4%) vs previous 2.4% NZ consumer confidence 133.0 vs previous 135.8 Japan trade balance (¥1.81T)street (¥1.51T) Japan exports 9.5% vs street 12.7% Japan imports 25.0% vs street 22.7% Economic reports due later today include: 10:00 am EST US Philadelphia Fed street 8.0 10:00 am EST US leading indicator street 0.3% 10:30 am EST US natural gas storage street (257 BCF) vs previous (237 BCF) 11:00 am EST US crude oil inventories street 2.2 mmbbls vs previous 3.2 mmbbls 11:00 am EST US gasoline inventories street (0.85 mmbbls) vs street (1.8 mmbbls)

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