Wednesday September 23rd


Futures hold higher amid China woes

U.S. stocks were expected to open higher on Wednesday, with a rally in Europe acting as buffer to further signs of weakness in China's economy. The preliminary China manufacturing purchasing managers' index (PMI) fell to a six-and-a-half-year low of 47.0 in September, below a 47.5 forecast by analysts in a Reuters poll, data showed. Asian shares skidded deeper into negative territory following the data, with the benchmark Shanghai Composite stock index closing more than 2 percent lower. Japanese markets were closed for a holiday. European markets, however, reversed early falls to trade higher in morning London trade. Oil also recovered to trade nearly 1 percent higher. Those gains offered some support to U.S. stock futures, which reversed early falls to trade broadly higher. Dow Jones industrial average stock futures were up about 40 points, pointing to a rebound in the blue-chip stock index which closed 1 percent lower Tuesday. "Investor sentiment has been dealt another blow after the China Caixin manufacturing index slipped to a six-and-a-half-year low, fueling Chinese growth fears at a time when concerns are already quite elevated," said Craig Erlam, senior market analyst at trading firm OANDA, in a note. "Falling demand both domestically and abroad is only going to make the task of achieving (the) seven percent growth (target) that much harder and in fact, there has already been a number of revisions to Chinese growth forecasts this year," he said. The Asian Development Bank on Tuesday said it expected China, the world's second largest economy, to grow by 6.8 percent this year, down from a previous forecast of 7.2 percent. In addition to the China PMI data, markets also digest PMI readings from Europe and the September U.S. flash manufacturing PMI at 09:45 a.m. ET. Chinese President Xi Jinping, visiting the U.S. this week, on Tuesday said China's economy would remain on a "steady course" and reassured the world that China's financial markets will remain stable. In the wake of last week's U.S. Federal Reserve decision to keep interest rates at record low levels amid concerns about the global growth outlook, attention was also expected to turn to Fed speakers for further insight into when rates may be raised. Atlanta Fed President Dennis Lockhart speaks at 12:30 pm ET. Analysts at Daiwa Capital said in a note that Lockhart is a relatively "centrist" member of the Fed, noting that earlier in the week he suggested a rate hike in the fourth quarter of the year was still on the cards as long as market volatility settles down. European Central Bank President Mario Draghi speaks before the Committee on Economic and Monetary Affairs (ECON) of the European Parliament in Brussels at 9 a.m. ET. A sharp fall in the shares of German car maker Volkswagen was also expected to continue to weigh on sentiment as investors assess the fallout of an emissions scandal. Volkswagen shares, which have slid more than 30 percent in the past two sessions, tumbled a further 3.8 percent in early Wednesday trade in Europe. Back in the U.S., Steelcase, Worthington Industries are expected to report earnings, while the U.S. Treasury is expected to sell $35 billion worth of five-year bonds later in the day. Brent crude oil rose toward $50 a barrel on Wednesday as a drawdown in U.S. crude oil stocks outweighed the negative impact of weak economic manufacturing data from China. The American Petroleum Institute (API) said U.S. crude stockpiles fell 3.7 million barrels last week, with stocks at the Cushing, Oklahoma, delivery point for U.S. crude futures down almost 500,000 barrels. Benchmark Brent was up 42 cents a barrel at $49.50 by 8:25 a.m. EDT (1225 GMT). U.S. light crude was up 33 cents at $46.69. The U.S. industry data helped oil resist the negative impact of a sharp contraction in Chinese manufacturing. Gold firmed, following two days of losses, as the dollar fell 0.1 percent against a basket of leading currencies, while weak Chinese factory data soured investor appetite for risk. Spot gold rose 0.35 percent to $1,128.63 an ounce, after losing 1.3 percent over the past two days on renewed expectations that the Federal Reserve will raise U.S. interest rates for the first time in nearly a decade by the end of the year.