Daily Market Reports | Dec 07 2016
By Greg Peel
The Dow closed up 35 points or 0.2% while the S&P gained 0.3% and the Nasdaq rose 0.5%.
Negative Growth?
Yesterday morning the index futures were suggesting the ASX200 would recover all that was lost on the Monday following the Italian referendum result, being around 50 points. Never mind that Friday had also seen a 50 point fall as the polls suggested a “no” vote would likely be the outcome in Italy.
It was a stumbling start but we got there around lunchtime, before peaking and drifting off for the rest of the session to a more modest 28 point gain. Interestingly the peak was reached after the release of the September quarter current account data, not before it.
I have been noting that unless there was a substantial boost to the terms of trade in the quarter, the weakness in prior data on construction, capex and corporate profits was signalling a quarter of potentially negative growth. Well, we didn’t get there.
The current account deficit did indeed contract courtesy of higher commodity prices but a drop in the volume of commodity exports and a jump in imports means net exports will actually detract from today’s GDP result. Forecasts are now sitting in a range slightly either side of zero growth for the quarter, implying an annual growth rate of just over 2.0% compared to the June quarter’s 3.3%.
Maybe the market needed to mull the numbers over lunch, as thereafter we saw the ASX200 begin to pull back.
There is no need to panic nonetheless, as economists continue to cite the time lag between contracted commodity prices and spot. The December quarter will be more of a beneficiary of recent spot price gains, thus staving off and thought of recession.
The sector story of the day was healthcare, and specifically residential aged healthcare, which was boosted by the listed triumvirate in the space of Estia, Japara and Regis all posting 11-13% gains. The government has backed down on the regulatory changes that had been touted and which had led to these three stocks having a shocker in 2016.
The healthcare sector rose 0.6% yesterday but this was a far cry from the 2.0% lost the day before on European fears impacting upon the real muscle in that sector, such as your Ramsays, with significant exposure on the continent.
Otherwise the session mostly saw buying across the board, reversing a lot of the across-the-board selling seen on Monday. The odd sector out was consumer staples, which fell 0.6% following press reports of the two big supermarkets undertaking a Christmas price war.
No one blinked at 2.30pm when the RBA statement was released leaving the cash rate unchanged. Move along, nothing to see here. Carson was of course still having conniptions as usual.
Interestingly the SPI futures are up 35 points this morning, outperforming Wall Street’s lead and defying mostly weaker commodity prices overnight. Perhaps that gap left from Monday’s sell-off still needs to be filled.
Better than TV
Trump, Trump, Trump – that’s all one hears about on US business television these days. If the Donald is not singling out one air conditioning manufacturer for individual support to save American jobs, he’s telling Boeing what it can do with its $4bn bill for the new Airforce One and announcing a planned $50bn US investment by Japan’s Softbank, creating 50,000 jobs, but no one knows what in.
Trump has stopped Carrier moving a plant from Indiana to Mexico. To reduce costs in Indiana, Carrier will look to largely automate the plant.
In the meantime, Wall Street continues to drift incrementally higher, ticking off new all-time highs almost daily. No one appears too keen to ignite more of a Santa rally given Santa has already been well and truly beaten to the jump by a different Father Christmas.
What has been notable this week on Wall Street is a rotation back into defensives and yield stocks which have been trashed, and out of banks and industrials which have soared. The theme now appears to be lock in profits and wait to see what happens next.
What happens next may not actually happen until after late January.
We are nevertheless counting down to next week’s Fed meeting, albeit that has every chance as being as much of a non-event as yesterday’s RBA meeting. A rate hike? Who knew?
We do otherwise have to get past tonight’s ECB policy meeting. But again it is unlikely Draghi sees any need to alter policy. He stood ready for a fallout from the Brexit vote that never actually came, and he was probably similarly ready for the Italian referendum but nothing untoward has transpired there either.
Not yet, anyway.
Commodities
There had been much talk that were OPEC, Russia and others to indeed reach production cut agreements, WTI oil would go to US$55/bbl and maybe even push to US$60/bbl. But it is also well understood any price towards 60 would see US shale fire up again, hence WTI is presently struggling to hold above 50. It’s down US43c at US$50.76/bbl.
Another mixed session in London saw aluminium and copper lose 1% and zinc gain 1%.
Iron ore rose US20c to US$78.60/t.
The Aussie is down 0.2% at US$0.7455 which doesn’t seem like much given yesterday’s underscored expectations of a possibly negative GDP result, and can be explained by a 0.4% gain in the US dollar index to 100.48. Forex markets appear to have already absorbed the threat of a weak GDP.
Gold is down US$3.20 at US$1167.50/oz.
Today
The SPI Overnight closed up 35 points or 0.6%.
The GDP result is due out late this morning.
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