Thursday Morning Cheat Sheet: 3 Stories Moving Markets

Major markets fell in Asia on Thursday. Japan’s Nikkei plunged 7.32 percent, demonstrating that the U.S. markets aren’t the only ones that have become addicted to central bank stimulus. Ostensibly hawkish comments by Federal Reserve Chairman Ben Bernanke and an unexpected contraction in Chinese manufacturing have been credited for the sell-off. In Hong Kong, the Hang Seng fell 2.54 percent, while the S&P/ASX 200 declined 1.99 percent in Australia.

European markets declined in mid-day trading, sympathetic to the Nikkei and apathetic to a preliminary composite purchasing managers’ index report that showed contraction. Germany’s DAX was off 2.42 percent, London’s FTSE 100 was off 1.80 percent, and the STOXX 50 index was off 2.11 percent.

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U.S. futures at 8:20 a.m.: DJIA: -0.82%, S&P 500: -0.93%, NASDAQ: -0.97%.

Here are three stories to keep an eye on:

1) Conflicting Messages Mean Market Turmoil: It doesn’t look like the Nikkei’s sharp decline can be attributed to any one factor, but observers suggest that U.S. Fed Chairman Ben Bernanke’s testimony before Congress yesterday could have something to do with it. Bernanke has made it clear that economic data will inform his decision making, but his efforts to remain transparent have apparently fallen short. The minutes from the previous FOMC meeting, also released yesterday, showed that several members favored curbing purchases at “one of the next few meetings.” Any tightening of policy in the U.S. would have ramifications not just domestically but in major foreign markets around the world.

Compounding whatever high-level sentimental problems the markets had on Thursday was a strengthening of the yen to 101.6650 to the dollar. A weaker-than-expected Chinese manufacturing report also likely weighed on the session.

2) Chinese Manufacturing Slides Into Contraction: The HSBC Flash China Manufacturing PMI report, compiled by Markit, read 49.6 in May, a seven-month low indicating contraction for the sector. The output index fell fractionally to 51.0, a three-month low but still indicating growth.

Hongbin Qu, Chief Economist, China & CoHead of Asian Economic Research at HSBC commented: “The cooling manufacturing activities in May reflected slower domestic demand and ongoing external headwinds. A sequential slowdown is likely in the middle of 2Q, casting downside risk to China’s fragile growth recovery. Moreover, the further signs of labour market slackness call for more policy support. Beijing still has fiscal ammunition to do so.”

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3) Euro Zone Downturn Eases in May: Markit’s Flash Eurozone PMI report climbed to 47.7, a three-month high despite remaining well below the threshold for growth.

Chris Williamson, Chief Economist at Markit, commented: “The euro zone’s second recession in five years looks set to drag on into a seventh successive quarter. Although the Eurozone PMI rose for a second successive month in May, the survey remains firmly in contraction territory and indicates that the economy is likely to contract in the second quarter at a similar rate to the 0.2 percent decline seen in the first three months of the year.”

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