After it seemed like the markets were setting up for a session similar to yesterday, the markets proved us wrong. The early reversal for the market is quite encouraging, although we aren’t entirely sure it will hold for the day, but it looks like the classic definition of a market “shakeout.” Anxiety remains around what the Federal Reserve may or may not say tomorrow, but today, the large money managers are moving money out of weaker, high beta names into stronger stocks and cash reserves. However, investors have not eased up their excitement for Alibaba’s (BABA) IPO: in a new SEC filing, Chinese e-commerce giant Alibaba raised its IPO pricing range to $66-$68 per share from $60-$66. At the midpoint of the new range, the company would raise about $21.4 billion, which should make the company valued at a whopping $165 billion. BABA shares will list on the NYSE, be priced on Thursday evening and will begin trading on Friday. Unlike BABA however, optimism is being lost slowly, but surely in the company’s home country of China.

As we noted last week, China’s economic data has been atrocious recently and the clock is ticking for their government to enact a stimulus plan before year-end. Most Chinese companies are getting hit hard today as there continue to be fears that no stimulus will come about before China’s week-long national public holiday at the end of September. In addition, it was noted that foreign direct investment inflows during the month of August fell to a low not seen since February 2012. China attracted $7.2 billion in foreign direct investment which was down 14.0% from a year earlier. Needless to say, the technology sector and the NASDAQ in particular are getting hit hard by the volatility in Chinese names this week as well. However, we certainly believe that the government will step up to the plate with something to calm investor worries before the holiday. Below is a two-year chart of the Shanghai Composite Index compared to the Dow Jones Industrial Average. While the Dow Jones notably has a linear slope to the upside, the Shanghai Index is all over the place, usually showing a rally then a big crash shortly after. Their government will definitely be forced to intervene to achieve a 7.5% annual GDP growth rate, but in the meantime, the NASDAQ components headquartered in China are not helping volatility in the US this week.

The most noteworthy domestic economic release was the Bureau of Labor Statistics’ report on the Producer Price Index (PPI). The PPI measures the average change over time in the prices received by domestic producers of goods and services. During the month of August, food and energy producer prices greatly softened; the PPI total final demand was unchanged after a 0.1% increase in July, but this was in line with expectations. However, the core reading (which excludes food and energy) eased to 0.1% after increasing 0.2% the month before, and was also in line with estimates. Total final demand excluding food, energy, and trade services increased 0.2% in August, matching the July rate. The final demand services index climbed 0.3% in August after inching up 0.1% in July. We note that 80% of that advance in August can be attributed to a 0.3% rise in prices for final demand services less trade, transportation, and warehousing. Additionally, the index for final demand goods moved down 0.3% percent in August – this is the largest decrease since a 0.7% drop happened back in April 2013. On a seasonally adjusted year-over-year basis, the final demand PPI was up 1.8% for August compared to 1.7% in July and excluding food & energy was up 1.6% in August which is the same pace as July.