Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Tuesday morning the “slowdown in China” mattered. Than Apple rallied mid day and nothing else mattered. Yesterday China was forgotten. This morning the “slowdown in China” matters again. So goes a market with the attention span of a gnat. Much like Tuesday the China story is more of an excuse to sell than a new development – overnight data came in soft on flash PMI. In the old days that just meant what it meant, China is slowing. Now we have to deal with a 3 dimensional chess board, wondering when the market will be “happy” about said fact, becaue of course it means more Chinese easing down the road, along with the prospects of easy money in the U.S. of course. With a market priced much higher than it was a few months back, it should matter more – until the “China must ease” bandwagon piles on. You can see it from the quote below 
- The HSBC preliminary Purchasing Managers Index fell to 48.1 in March, a four-month low, compared with a final reading of 49.6.
- The March reading marks the fifth straight month the index has been in contractionary territory, signaling extended difficulties for the nation’s manufacturers.
- Sub-index readings within the PMI suggested that weak domestic demand is the main culprit for the slowdown. The new orders sub-index fell to a four-month low of 46.1, from 48.5 in February. Meanwhile, the new export orders sub-index rose to 48.7 from 47.5 in February, still below the expansionary threshold of 50.
- “Growth momentum could slow down further amid a combination of sluggish export new orders and softening domestic demand. This calls for further easing steps,” HSBC Chief Economist for China Qu Hongbin said in a statement.
We are getting one of the few ‘gap downs’ mornings all year – in fact this is the 2nd of the week. Off the top of my head I only count a handful all year, so it’s been a rare event in 2012. We should finally see that pull in that gets the indexes near the 10 day (simple) moving average of 1392 on the S&P 500. If this is the now atypical type of pullback (i.e. >1% on the senior indexes) the next level would be the 20 day which is down at 1378. An interesting number as that was the level from which this leg of the breakout happened, as the index blased through 2011 highs. This would be a normal (and healthy) pullback. Movement below that level would lead to further conversations.
Lost in the conversation around China is also the slowdown in Europe – more data points along that line this morning as well.
- Euro-zone business activity shrank further in March, suffering its biggest contraction in three months and cementing fears the region is officially in recession.
- Markit Economics said Thursday that its composite purchasing managers’ index for the 17 nations that use the euro fell to 48.7 in March from 49.3 in February. That was under the 50 threshold that indicates growth, and means output fell during the first quarter as a whole, Markit said.
At some point this is going to add up to the point people begin to worry about corporate profits. Thus far it has not mattered – when it does, is always the question.
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Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund’s holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog
