EmailThe U.S. stock market is indicated to open higher today, cheered reportedly by foreign manufacturing surveys that were not as weak as their previous readings. It is a dubious catalyst, yet it is working for the time being to get things going on the first trading day of the month, which often sees inflows.
The catalyst is a dubious one in our estimation, because the manufacturing data are not strong. In fact, manufacturing surveys out of China, Germany, France, and the UK were all below 50.0, which is the dividing line between expansion and contraction.
The draw for some is that they were up from August, suggesting the pace of contraction is slowing. France was an exception there, as its Purchasing Managers Index dropped to 42.7 from 46.0 in August.
Oh well, c'est la vie in a QE world where the real economy takes a back seat to the alternate reality of a central bank-sponsored reflation trade.
That trade can work so long as market participants consider central banks to be credible. That credibility, however, is ultimately tied to real economic trends. The longer things remain in a state of contraction, the less credible monetary policy becomes as a perceived difference maker.
Perhaps Fed Chairman Bernanke will speak to that point today in a 12:30 p.m. ET speech entitled, "Five Questions about the Federal Reserve and Monetary Policy." It was probably a strategic decision to control the titling for the speech since there are way more than five questions about monetary policy right now.
In any event, the market will understandably keep a close eye and an attentive ear on the speech from the Fed chairman.
In the meantime, it will digest the ISM Index for September at 10:00 a.m. ET. The Briefing.com consensus estimate is pegged at 49.7 versus a reading of 49.6 for August. The new orders index for the ISM will be an important number to watch. An uptick in the overall reading for September would be diluted with a downtick in the new orders index, which stood at 47.1 in August versus 48.0 in July.
Construction spending data for August (Briefing.com consensus +0.4%; prior -0.9%) will also be released at 10:00 a.m. ET. It will likely be overshadowed by the ISM Index, which is more current, yet the construction spending figures will be pertinent to Q3 GDP forecasts.
Notably, oil prices are down this morning (-$0.19 at $92.00), which is a trade that doesn't fit with the good vibes reportedly thrown off by the better-than-feared manufacturing surveys. That makes us think the good economic feelings aren't quite as good as they are being made out to be and that the uplift in the futures market might have more to do with market mechanics (i.e. first-of-the-month inflows) than anything else.
Either way, the alternate reality the equity market is living is still trumping real world problems as a market driver. The S&P futures are trading 0.4% above fair value.
--Patrick J. O'Hare, Briefing.com
