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Another Monday starting the week with a triple digit Dow loss as reports show manufacturing shrank in both Europe and China (for the 6th straight month). The euro weakened, and the yields rose in France, Italy and Spain.

Asian indices fell modestly — the Shanghai Composite Index fell 0.8%; Hang Seng China Enterprises Index dropped 1.8%.

European stocks was where the pressure was after, lower by some 2% to start the week after Germany reported a terrible PMI Manufacturing number for April. The Euro-Stoxx 50 was off 2%, the FTSE 100 was off -1.48%, while the CAC 40 dropped -1.74%. The biggest losers were the DAX sown -2.43%, IBEX 35m whacked -2.79%, and the OMX Stockholm 30, down more than -3%.

Note that French President Nicolas Sarkozy became the first incumbent since 1958 not to win the first round of the nation’s election.

The Wal-Mart scandal is getting front page treatment on US financial channels, but that is not what is driving this market lower. Perhaps this is a teachable moment for those of you who haven’t figured  out the difference between actual financial journalism and news flavored entertainment. This is the equivalent of “If it bleeds it leads” even thought the impact for investor is de minimis.

My contribution to Twitter is that hashtag: #newsflavoredentertainment . . .

 

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UPDATE: April 23, 2012 9:29am

To answer a reader’s query, the pattern on these days has been down hard at the market open, rally that fails, drift, then a move higher after Europe closes.

Past performance is no guarantee of future behavior. YMMV

Category: Markets

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12 Responses to “Look Out Below; China Manufacturing Edition”

  1. mathman says:

    of course this applies to the U.S. too:

    http://www.proactiveinvestors.com/columns/casey-research/1126/ditching-the-dollar-1126.html

    (selected quotes)

    “There’s a major shift under way, one the US mainstream media has left largely untouched even though it will send the United States into an economic maelstrom and dramatically reduce the country’s importance in the world: the demise of the US dollar as the world’s reserve currency.”

    (further down)

    “The supremacy of the dollar is not nearly as solid as most Americans believe it to be. More generally, the United States is not the global superpower it once was. These trends are very much connected, as demonstrated by the world’s response to US sanctions against Iran.”

    (and)

    “Russia and China are leading the charge. More than a year ago, the two nations made good on talks to move away from the dollar and have been using rubles and renminbi to trade with each other since. A few months ago the second-largest economy on earth – China – and the third-largest economy on the planet – Japan – followed suit, striking a deal to promote the use of their own currencies when trading with each other. The deal will allow firms to convert Chinese and Japanese currencies into each other directly, instead of using US dollars as the intermediary as has been the requirement for years. China is now discussing a similar plan with South Korea.

    Similarly, a new agreement among the BRICS nations (Brazil, Russia, India, China, and South Africa) promotes the use of their national currencies when trading, instead of using the US dollar. China is also pursuing bilateral trades with Malaysia using the renminbi and ringgit. And Russia and Iran have agreed to use rubles as a means of currency in their trades.

    Then there’s the entire continent of Africa. In 2009 China became Africa’s largest trading partner, eclipsing the United States, and now China is working to expand the use of Chinese currency in Africa instead of US dollars. Standard Bank, Africa’s largest financial institution, predicts that $100 billion worth of trade between China and Africa will be settled in renminbi by 2015. That’s more than the total bilateral trade between China and Africa in 2010.

    The idea of moving away from the dollar is also finding support from major international agencies. The United Nations Conference on Trade and Development has stated that “the current system of currencies and capital rules that binds the world economy is not working properly and was largely responsible for the financial and economic crises.” The statement continued, saying “the dollar should be replaced with a global currency.” The International Monetary Fund agrees, recently arguing that the dollar should cede its role as global reserve currency to an international currency, which is in effect a basket of national currencies.

    There is also a host of countries that have started using their own currencies to complete oil trades, a move that strikes right at the heart of US-dollar dominance. China and the United Arab Emirates have agreed to ditch the dollar and use their own currencies in oil transactions. The Chinese National Bank says this agreement is worth roughly $5.5 billion annually. India is buying oil from Iran with gold and rupees. China and Iran are working on a barter system to exchange Iranian oil for Chinese imported products.”

    there’s more – it’s an eye-opening read

  2. Ted Kavadas says:

    Many recent developments in the market are notable. One of the most interesting is the recent price action of AAPL, currently at 568.

    I continue to believe that there are many substantial risks and warning signs inherent in the stock market, broader financial markets, and economy. Here is my most post from Thursday on the subject, for those interested:

    http://economicgreenfield.blogspot.com/2012/04/building-financial-danger-april-19-2012.html

  3. PeterR says:

    MA(50) support is crucial here. SPY is going overshoot it to the downside this morning, but the April low around 136 better hold, or it could truly be Look Out Below indeed. A bounce back up to MA(50) in EOM window dressing could bring another, possibly final, lower high, then Sell in May and Go Away?

    March 21st Head and Shoulders options may be playing out since the high around April Fool’s Day. No joking!

  4. RW says:

    @Mathman, that’s more entertainment than news: Predictions of the US Dollar’s death have been as hyperbolic and wrong as predictions of immanent inflation and those who bet on it invariably lost their shirts.

    But, okay, assume the $USD does indeed lost status as THE reserve currency, merely one among the crowd of currencies from other major trading nations.

    From an economic perspective, particularly from the POV of current account, why is that not a truly excellent thing?

  5. Jim67545 says:

    Mathman’s post reminds us that it is not just the people in this country that are striving to better themselves, and dominate for their own benefit. It sometimes seems that we think we are the only team on the field and have merely to show up to always win.

    It is easy to assume that the Chinese or Germans or whomever have a better organized plan of attack. Maybe they truly do but it is certain that there is practically no plan of attack from the good ol’ USA. At some point we have to have a plan or we will continue to fall behind those who do.

    The question is, how do we develop a plan, or any semblance of a concensus, when everyone is busy fighting for their own seat on the lifeboat? Bail anyone?

  6. Jack Damn says:

    Until we start violating down trending 200-day Moving Averages, I’ll consider any move down a correction within a major bull trend and look for buying opportunities.

    Need to see some lower-lows and volume upticks before the Bear case is workable. At this point, I think most Bulls would welcome a deep pullback to free up cheaper price points.

    The Bears talk big, but never follow through. They had their chance in 2007-09 and look where we’re at now? Bears are just Bulls longing for cheaper stocks. That’s all.

  7. nofoulsontheplayground says:

    A large number of daily H&S tops are breaking down or are continuing their breakdowns. The SPX H&S top formation targets roughly 1300 SPX.

  8. The USD will not lose its status as a reserve currency. It’s ongoing chatter that someone or something else can replace it, but it is not going to happen. If it were, gold would not be ‘trending’ the way it has been for the last several months.

  9. HarryWanger says:

    @nofoul….SPX is forming a gorgeous H&S on the daily. We lose 1340 and it will get ugly.

    It amazes me that the business “news” folks are focusing on WMT and China when EU and Germany put up some really awful misses on manufacturing. That’s what’s really behind the strength of this selling.

  10. Herman Frank says:

    Wonderful! Now that you’ve found “the trend”, i.e. down, meandering, and up after those negative Europeans close, we’re in for a surprise when the trend goes down, meanders, and goes down even further!
    Buy put-options at the close for the most optimistic pricing and go home whistling “I saw three (gold-) ships come sailing in ..”
    “The pain, the pain! The tail-risk …. :-(“

  11. ZedLoch says:

    I don’t get all the fear about China. So what if GDP growth slows from 10% to 8%? Isn’t that still ridiculously high?

    Or (I’m likely answering my own question here), is it more Chinese slowdown is an indicator of slowed demand in the USA and a sign that inventories are up?