Australian Stock Market Report – Midday September 23, 2014

Morning commuters pass by the New York Stock Exchange September 15, 2014. REUTERS/Brendan McDermid (UNITED STATES - Tags: BUSINESS)

ASX 200; saved by the data.

 Opening trade for local stocks saw sellers remain with the upper hand in terms of conviction and in psychological terms. The ASX 200 was down by 6 points at first trade and went on to post a loss of 25 points at the worst levels of the morning. However as the first hour of trade was completed and the HSBC reading on Chinese manufacturing came into focus the ambition of sellers began to fade and a bottoming out process became evident. In the face of the sustained selling pressure that has been a feature of recent weeks, the main risk for the market was a reading that was a least in line with expectations. Such a number would at ease the momentum of selling that has been such a staple.

 At 11:45 AEST the HSBC figures were released showing the Flash China Manufacturing PMI at 50.5 in September edging up from 50.2 in August. The Flash China Manufacturing Output Index remained steady at 51.8 in September. The 'Flash' estimate is so called because according HSBC the survey is based on "approximately 85%-90% of total PMI survey responses each month and is designed to provide an accurate indication of the final PMI data". The final PMI data will be released on 30 September 2014. Comments from HSBC cited a mixed picture for Chinese manufacturing. "New orders and new export orders registered some improvement. Meanwhile, the employment index declined further and disinflationary pressure intensified. Economic activity in the manufacturing sector showed signs of stabilization in September". The figures were enough to see a short lived rally which resulted in the highs of the session being put in place at lunchtime when the ASX 200 was ahead by 16 points.

 The Chinese data did little to help the fortunes of iron ore miners, which largely remained mired in the red. The heavily sold Fortescue Metals Group was the only stock to post a meaningful improvement with a gain of 1.2 per cent to $3.63. The modest improvement in the HSBC data was not enough to balance other factors weighing on the picture for iron ore demand. In the last day iron ore prices continued their decline, falling by 2.3% to USD79.80/t (CFR China), driven lower by falling steel prices and Chinese steel mills purchasing iron ore from port stocks in preference to the seaborne market. There are also some expectations China's government will enact new environmental regulation by the end of the year, which could see crude steel output cut, potentially further reducing demand for iron ore.

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