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Stocks Tip Scale Back to Buying as Choppy Trading Persists

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September 23, 2015

U.S. stocks flash early signals for gains on Wednesday, defying what’s so far been sloppy two-directional trading in Europe and hefty declines across most Asian stock markets after more Chinese factory data revealed that growth engine is sputtering.

Stocks fell Tuesday, tracking commodities prices lower and continuing what some are calling a bullish/bearish stalemate in which dips are drawing some buyers but rallies stir nervous sellers, too.

Today dawned with fresh data out of China. The preliminary Caixin China Manufacturing Purchasing Managers' Index, a gauge of nationwide manufacturing activity, fell to 47.0 in September, compared with a final reading of 47.3 in August, Caixin Media Co. and research firm Markit said. The reading—which at below 50 indicates contraction—was at its lowest since March 2009, when China was mired in the global financial crisis.

A sprinkling of purchasing managers’ surveys from Europe missed some industry analyst forecasts, but were strong enough to reflect expansion, helping stocks to swing at least temporarily higher there.

stock-market-stalemate

FIGURE 1: STOCK STALEMATE.

The broad-based S&P 500 (SPX) fell Tuesday and continues a choppy range around the 1950 line. Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Crude Stockpile Drawdown. The American Petroleum Institute data indicated U.S. crude stockpiles fell 3.7 million barrels last week, more than industry analysts forecast. Stocks at the Cushing, Oklahoma delivery location were down almost 500,000 barrels, as those analysts argue that weak prices are denting interest in U.S. production. Crude oil futures prices are higher early Wednesday, likely a reflection of the supply data and the Chinese manufacturing data disappointment. The U.S. government's Energy Information Administration releases its own report on supply later today.

VW Could Dent German Economy. As for Europe, attention remains fully fixed on Germany’s stock market and its economy, where the vital auto industry’s reach hits many supporting jobs in some way. Industry economists and German government officials are busy trying to estimate the broad impact of the Volkswagen emissions scandal on its auto industry and German GDP, while the risk of softer Chinese demand for German cars and more could hurt, too. The U.S. EPA has charged that VW installed illegal “defeat device” software to cheat emission tests, allowing its cars to produce up to 40 times more pollution than allowed. A European auto maker trade group said there’s no evidence to date that the emissions abuses are an industry-wide issue. European Central Bank President Mario Draghi will give his quarterly hearing before the Committee on Economic and Monetary Affairs of the European Parliament today. Investors are waiting to hear if China’s bumps and the potential impact on the euro-zone will nudge the ECB toward more quantitative easing.

Cisco in China Talks? Cisco (CSCO) is reportedly to announce a partnership in China’s upstart server market with Inspur Group, financial media says. The company's revenue in China is estimated to have fallen off 30% from a peak of $2.04 billion in fiscal year 2012. The reports also note the private tie-up is a different approach for Cisco, which has worked closely with the Chinese government in the past.

Good trading,
JJ
@TDAJJKinahan

JJ Kinahan

JJ began his career in 1985 as a Chicago Board Options Exchange...

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