\n\tBy Greg Peel<\/p>\n
\n\tThe Dow closed down 8 points or 0.1% while the S&P added 0.3% to 1365 and the Nasdaq<\/span> jumped another 0.6%.<\/p>\n \n\tFirstly let's note that whenever you see a session like we did on Friday, with risk assets surging on the headlines out of Brussels, it's not unusual to see everything pull back just a little in the following session. We can also note Friday was end-of-quarter in the US and may have been aided by some window dressing. And finally we must acknowledge that volumes last night fell back from already modest levels as Americans switch into summer vacation mode, with the markets closed on Wednesday and closing early tonight.<\/p>\n \n\tHaving said that, we note that while commodities and other assets reversed slightly last night as might be expected, only the blue chip stocks pulled back – barely – while the broader indices edged ahead. The indication here is that we're back to our favourite<\/span> game of the past four years – when bad news is good news.<\/p>\n \n\tIt was global manufacturing PMI day yesterday which, as we look through the dust of European deliberations, provides a reliable snapshot of the state of the global economy. China kicked off on Sunday with a fall in its PMI to 50.2 in June from 50.4 in May which, on the official number, suggests a slowing pace and only minimal growth. HSBC's independent equivalent PMI was confirmed yesterday as falling to 48.2 from 48.4, suggesting accelerating contraction.<\/p>\n \n\tAustralia's number was a bit of a shock given the current climate, rising to 47.2 from 42.4. It's the fourth consecutive month of contraction but implies a slowing rate of contraction, which might be good news or may just be a blip. No surprises in the eurozone<\/span>, which saw an unchanged 45.1 – at least it's not getting worse – while similarly the UK reading saw a rise to 47.4 from 45.9.<\/p>\n \n\tAll these results suggest a global economy easing off but perhaps bottoming out, although one set of monthly figures does not a summer make. And then we get to the US. Economists had expected a slowdown to 52.0 from 53.5, so it was a bit of a shock when the number came out at 49.7 – the first contraction result since July 2009.<\/p>\n \n\tThe news was enough to send the Dow down 85 points by around 11am<\/span>. However this knee-jerk ignored two factors.<\/p>\n \n\tThe first is that May construction spending also came out last night, and it showed a better than expected jump of 0.9% – the biggest gain since December 2009. Within that figure, residential construction surged 3.0%, which is the best result since January 2009 and provides further evidence of the apparent bottoming out of the US housing market.<\/p>\n \n\tThe second is, as I alluded to above, that weaker US data imply more likelihood the Fed will be forced to introduce QE3<\/span>. If this is the case, and the jury's still out, the Fed will simply be joining the biggest global stimulus push since 2009. The weak Chinese PMI only strengthens expectations that Beijing will step up its policy easing measures in the second half. The eurozone<\/span> result must be taken in the context of Europe's new pro-growth agenda, bank bail-outs and general stimulus measures (and the ECB<\/span> is still expected to cut rates on Thursday). Talk is that the Bank of England will announce another GBP<\/span> 50bn<\/span> of QE stimulus on Thursday as its economy and housing market wallow ahead of the country's fast approaching showcase moment, and as we know the RBA<\/span> is now in cutting mode.<\/p>\n \n\tThe RBA<\/span> board meets today, but there is little to no expectation of another cut this month after 75bps<\/span> of cuts in two months and an apparently positive resolution in Europe, not to mention improved manufacturing data. The RBA<\/span> will likely wait and see how those cuts go and wait for the next round of inflation data.<\/p>\n \n\tAssumptions of further global stimulus in general and QE3<\/span> in particular were enough to send the US stock indices back up again, with only the Dow failing to recover into positive ground. Perhaps the most telling movement last night was nevertheless that of US bonds. Having risen 8bps<\/span> on Friday as safe haven money flowed back out on the news from Brussels, last night the ten-year yield fell back by almost as much to 1.58%. Standard QE implies the Fed buying ten-years thus supporting prices and keeping yields low.<\/p>\n \n\tThe US dollar index nevertheless retraced by 0.3% to 81.87, while both the Aussie at US$1.0247 and gold at US$1597.10\/oz were relatively steady. After their remarkable rallies on Friday, the oils fell back last night, with Brent down US46c<\/span> to US$97.34\/bbl<\/span> and West Texas down US$1.28 to US$83.68\/bbl<\/span>. In London, the base metals all eased back by a percent or less.<\/p>\n \n\tIt must be noted that despite the weak global PMI numbers they were still pretty keen over on European bourses<\/span> last night, with the UK, French and German indices all up around another 1.3%.<\/p>\n \n\tThe SPI<\/span> Overnight rose 15 points or 0.4%.<\/p>\n \n\tSo today we will see the Chinese services PMI (everyone else tomorrow) and the RBA<\/span> rate decision, which is tipped to be unchanged. Tonight the NYSE will close at 1pm<\/span> local time with only trainees and those heading off for a long lunch manning the boards in the morning. Wednesday night US markets are closed for the fireworks, but on reopening we'll see the monthly US jobs numbers later in the week, which will no doubt bring QE3<\/span> talk to the fore once more.<\/p>\n