Weaker industrial profits out of China weigh on markets

Share Markets:

Risk aversion escalated overnight which saw European and US stocks sharply lower. Concerns over China weighed on overall sentiment, triggered by falling industrial profits.

Weakness in US healthcare stocks dragged down the Nasdaq which fell over 3%. The S&P500 fell 2.6%, while the Dow dropped 1.9%.

Interest Rates:

US treasuries rose as the downturn in sentiment boosted demand for safe havens.

The yield on 10-year US treasury notes fell 7 basis points to 2.09%. Comments by Fed President Dudley appeared to have little impact on financial markets, which stood in contrast to comments by other Fed speakers.

Yields on 2-year treasury notes fell 2 basis points to 0.67%.

Australian yields on 3-year bond futures fell 4 basis points to 1.83% and yields on 10-year bonds fell 5 basis points to 2.67%. 

Foreign Exchange:

The Japanese yen and the euro were the outperformers in the weak risk environment, while the US dollar index weakened.

The Australian dollar unsurprisingly fell in step with weaker financial market sentiment and concerns over China, dropping below 70 US cents.

Commodities:

Commodity prices mostly fell, tracking weaker share markets and on the concerns regarding China.

Oil prices dropped nearly 3%.

Base metals including copper also weakened following the weak Chinese data.

Gold failed to benefit from any safety bid, also dropping on the possibility that the Fed could raise rates later this year.

Australia:

No data to report.

China:

The profits of industrial companies in China fell 8.8% in the year to August.

Profits in the mining sector were down 57.3% over the year while those in the manufacturing sector rose 4.5%.

United States:

Personal income and spending rose 0.3% and 0.4%, respectively in August. Both outcomes were close to expectations, although there were upward revisions for July.

Both headline and core PCE inflation were in line with expectations with annual growth of 0.3% and 1.3%, respectively.

Core PCE inflation edged up from an annual pace of 1.2% in September but remains well contained. The ongoing moderate growth in consumer spending and slight firming of core inflation will keep alive the possibility of a Fed rate hike this year. 

Pending home sales declined 1.4% in August, versus market expectations for a 0.4% increase. 

The Dallas Fed manufacturing index improved from -15.8 in August to -9.5 in September, but remains in contraction.

New York Federal Reserve President Dudley provided some rather hawkish comments last night.

Dudley said that it was "a pretty strong case for lift off" and that it was a "live" decision at the Fed's next meeting in October.

Dudley said that he felt that inflation could reach its sometime next year and that the uncertain global environment and the stronger US dollar would be transitory factors keeping down inflation. 



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