More Pain in Stocks, China PMI Up Next

The S&P 500 was hit hard again Tuesday, sending risk trades lower. The yen led while NZD and EUR lagged. Major risks lurk in Asia-Pacific trading with Australian CPI and the Chinese flash manufacturing PMI on the calendar.

Corporate earnings hurt confidence in growth and hiring, pulling the S&P 500 1.4% lower and European bourses down as much as 2.2%. The Australian dollar tracked the moves lower, falling to a one-week low.

Economic data added to the negativity as the October Richmond Fed fell to -7 from +4 in September. A NYT report also said the Bernanke has told friends that he will step down at the end of his term. His replacement may be less likely to keep the monetary taps open, especially if Romney wins.

The main events on the calendar are Australian Q3 CPI and the HSBC flash China PMI.

The Australian CPI figures will be released at 0030 GMT and expected to show a 1.6% y/y rise. The trimmed mean is expected up 2.2% after a 2.0% rise in Q2. The OIS market is pricing in a 20% chance of an RBA cut on Nov 6 and a soft CPI reading will solidify those expectations.

The key number comes at 0145 GMT when HSBC releases its monthly manufacturing index. The September reading was 47.9 and the index has been below 50 for 11 months. Expect the Australian dollar to be hesitant between the two releases but, if both are low, it will fall.

-AB