More Signs Of Trouble In China

The markets are enjoying a strong rally in early trading.  This is often seen on the first trading day of the month or quarter.  But given the declines in many leading stocks of late, I am surprised that the S&P 500 is knocking on the door to new highs.  But far be if from me to argue with a bull market.

In economic news, the ISM Index for March rose to 53.7 from 53.2.

Corporate data is light right now as we remain in the quiet period for companies ahead of the Q1 earnings reports that will start soon.

Asian markets ended mostly higher.  Japan was a bit lower after implementing its first sales tax hike since 1997.  In China, their HSBC manuf. PMI slipped to 48.0 from 48.1.  The PMI for China has now been below the 50 level for several months, indicating their manufacturing sector is in contraction.

Moreover, Tonghao New Board failed to make its coupon payment in March, representing the first default in the private-placement market for high-yield bonds.  This doesn't seem to be getting much press, but it markets another wheel that is loose on the Chinese economic truck.  With manufacturing slowing, the property market cooling, and non-performing loans on the rise we think a hard landing in China remains the biggest risk out there right now.

Europe's markets are also higher today.  Eurozone PMI held steady at 53.0.  France, Spain, and Italian PMI's all improved.

The 10-year yield is higher to 2.76%, a good sign for economic bulls that it stopped drifting lower. 

And the volatility index is moving lower again, down -3.5% to 13.40.

Trading comment: The early pop in the market is losing some steam as this post goes to press.  We will have to wait and see how today's session finishes up and if the market can close at its highs.  The price action has to be respected and it is possible that the rotation pattern we saw last year is back in effect and while the high flyers enter their corrections money flows into other sectors that will carry the leadership baton for the next leg higher.