Intraday Market Thoughts

Manufacturing Continues to Slow, Watch HSI Levels

by Adam Button
May 25, 2011 1:10

A soft Richmond Fed continued the trend of manufacturing disappointments and undercut dollar gains in New York trading. The day ended with EUR, USD and JPY generally unchanged against one another. Japans trade balance is one highlight on a busy Asia-Pacific data calendar.

Overall market moves were small but the New Zealand dollar was the top performer as it continued to ride the wave from the quarterly inflation survey. The Richmond Fed fell to -6 from +10 in May; a reading of 9 was expected. In four months, the index has fallen to -6 from +25 and the slump is likely to continue with the forward-looking new orders reading falling to -15 from +10. The unexpected weakness in Richmond follows similar disappointments from the Philadelphia and Empire Fed indexes. The slump in manufacturing data has passed the point where it can be blamed on seasonality or distortions but its not at the point where its clearly slowing across the country. This is primarily because the negative surprises have not shown up in the critical Chicago Fed or national ISM manufacturing survey. Those are due out next week but a precursor comes in tomorrows April report on durable goods orders.

Along with manufacturing, overall sentiment continues to erode. US stocks posted a small loss and have now declined in six of the past eight sessions. JPMorgan cut its Q2 growth forecast to 2.5% from 3.0%. There may be some upside in spending but the consumer alone cannot float the US economy at this point in the cycle.

Wednesdays only other data point was new home sales, which climbed for the second month with a reading of 323K compared to the 301K prior and 305K expected. Sales remain sharply down from one year ago.

Shanghai Composite Index is expected to open on the upside, as it is 2.5% below its 200 day moving average, which is the farthest below the key average it has been since January. On a weekly basis, the index is below its 55 wma for the first time since, and will need to close above 2791. We are also watching the Hang Seng Index and the key 18854, which is the crossing point of the 55 and 200 wmas.


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