Morning Meeting: The Chinese Wakeup Call

Good Morning, i hope you all had a great Halloween night!

On the Macroeconomic stand point of view good news are coming out of Asia, China's manufacturing activity rose to a multi months high in October as highlighted by two rival business surveys.

• The official Purchasing Managers' Index, released by the National Bureau of Statistics along with the China Federation of Logistics and Purchasing, printed at 50.2 on a 100-point scale, compared to 49.8 in September, but slightly lower than expectations of 50.3 in a Reuters poll of economists.
• The private-sector PMI released by HSBC, indicated activity firming to an eight-month high of 49.5, up from a final reading of 47.9 in September, and higher than an initial “flash” survey of 49.1 released last week.

Reading into the surveys: the good news come from small and medium sized companies, which new order subindex showed expansion for the first time in a year, although export orders were still below levels that indicate expansion signaling contraction for a sixth straight month due to weak demand from the US and Europe.

In the wake of the PMI readings the Shanghai Composite rose 1.83% to 2,106.79 compared to a 0.1% gain before the release, Hong Kong's Hang Seng Index rose 0.52% to 21,754.02 reversing from a 0.3% decline in early trading.

The data helped support other benchmarks with the Japan's Nikkei Stock Average up 0.3%  although under earning related pressure this morning, Panasonic Corp slumped 18.7$ after unveiling a near $9-billion quarterly loss after taking restructuring charges. Shares of Sony Corp. dropped 3.9% ahead of its report. TDK Corp. fell 5.7%, while Fujifilm Holdings Corp. dropped 4.3% after both firms cut guidance while reporting earnings.

Losses in the tech sector were offset by better than expected results from Softbank corp, the stock rose 4.2%, Kyocera Corp which traded up 3.4% and Mazda Motor Corp, which was up 8.4%.

Chinese data were unable to support the Kospi this morning, the index traded 1% lower, as South Korean manufacturing sector shrank for a fifth consecutive month, although the pace of decline slowed.

During the asian session the greenback gained  0.31% versus the Japanese Yen to 80.02Y, approaching a four-month high of 80.38 hit last week. The common currency traded flat versus the dollar at 1.2959$ still inside the $1.28-$1.32 range.

With Europe still facing its 3-years long crisis, with Spain lost in its “Dilemma” and Greece on the waiting line to know its future, the range will be broken once we got some clarity ahead. By the way a move in the currency market could be sparkled today by the US ISM national manufacturing index which is expected at 51.2, markets priced in 370k Initial Jobless Claims but the real test for the US economy is going to be tomorrow with the Non Farm Payrolls numbers.

Commodity wise a quite session with both Gold and Oil (WTI) holding the flat line respectively at 1,729.70$ an ounce and 86.32$ a barrel.

It's time for us to re-evaluate the Chinese Time Bomb hypothesis we worked on during the summer, but the question I'm still unable to answer is: Is the worst behind us in China?

While we are questioning our hypothesis, our main concern now is how will European markets react to the Chinese data? We expect the market to open higher, will buyers be able to offset concerns coming from Spain and Greece?

It's now time to work on our Game Plan. Have a great one.

Originally posted at www.77sigmatrading.com