Daily Market Reports | Apr 05 2016
By Greg Peel
The Dow closed down 55 points or 0.3% while the S&P lost 0.3% to 2066 and the Nasdaq fell 0.5%.
Devil in the data
The graph of yesterday’s trade in the ASX200 shows a near perfect arc, rising steadily to a peak of 47 points up around mid-session and then falling equally as steadily to a flat close. Once again it’s as if escape velocity was unable to be reached at the peak and the gravitational pull of 5000 was just too strong.
The stand-out sector move yesterday was in energy, which closed down 2.9% on a 4% overnight fall in oil prices. Despite a tick-up for iron ore and mixed base metal prices, materials closed down 0.8%. The only other sector to finish notably in the red was consumer discretionary, down 0.3%, which goes some way to explaining why early momentum was lost. The day’s economic data releases were not so flash.
Morning releases included February retail sales, which were flat on January despite forecasts of 0.4% growth. It appears economists underestimated a drop-off in demand in the mining states of WA and Queensland. Over the three months to February, sales rose 0.7%, compared to 1.0% in the previous three months. Over twelve months to February, sales rose 3.3%, down from 3.5% a year ago and below the 4.5% decade average.
Retail spending constitutes around 30% of household spending and around 17% of GDP, CBA’s economists note. The data thus provide a significant indicator of the health of the Australian economy. It is perhaps no surprise retail spending has cooled as housing growth has cooled.
Building approvals data released yesterday showed residential approval growth of 3.1% in February, down 9% over twelve months. Detached housing approvals fell 1% to be down 5.6%, so the balance came from apartment approvals which rose 7.7%.
That’s a decent clip for apartments, although approvals are down 12% year on year. We recall from last week’s data that investor loan growth is down 11% from its peak mid last year and apartment sales fell 11% in February. So one might say, good luck to those developers increasing apartment approvals by 7.7% in February. Let’s hope they’ve sold off the plan.
ANZ revealed yesterday job ads series grew by only 0.2% in March and have remained broadly unchanged in number since November last year. In trend terms, ads fell 0.2% in March, representing the first fall since October 2013.
It does not surprise ANZ’s economists given such a strong run last year, but jobs growth is clearly cooling.
Headline inflation was flat in March after falling 0.2% in February, according to the Melbourne Institute gauge. (Did we lose TD Securities somewhere along the way? I wasn’t told.) Annual inflation is running at 1.7%. Take out food and energy, and core inflation rose by only 0.8% in the March quarter.
Put all of the above together, and throw in an Aussie dollar at US$0.7605 (which is actually down a percent over 24 hours given those data), and it will be interesting to read what excuse Glenn Stevens comes up with today not to cut the cash rate when all about are cutting theirs, or in the Fed’s case, not raising.
Lacklustre
Oil prices were down another 3% overnight, which should be enough to explain weakness on Wall Street. That correlation is not as strong as it was previously but it’s still a factor.
We also had the Boston Fed president and FOMC member coming out last night to say that the Fed will probably raise its cash rate “sooner than the market expects”, which did appear to bump the indices down at the time, but given half the market is not even expecting a rate rise this year it’s hardly a significant statement.
US factory orders fell 1.7% in February. A lot of the fall was to do with a drop in lumpy aircraft orders but a 20% fall in oil and mining related equipment is more indicative of the current state of play.
Beyond that, it was a fairly light volume session on Wall Street last night showing no real conviction either way. Alcoa will report quarterly earnings next Monday night, unofficially kicking off the earnings season. Wall Street is now in a bit of a holding pattern.
Estimates have net earnings per share for the S&P500 falling 7% in the March quarter. A lot of that relates to the energy sector, where falls in excess of 100% (ie falling from profit into loss) are forecast. The focus will very much be on just how the non-energy industries fared.
Commodities
West Texas crude is down US$1.22 or 3.3% at US$35.46/bbl and Brent is down US$1.17 or 3.0% at US$37.51/bbl.
It was another mixed session on the LME last night. Zinc fell 0.5%, copper 1% and lead 2% while nickel rose 1%.
China was closed yesterday, thus iron ore is unchanged at US$54.00/t.
The US dollar index is flat at 94.57 but gold is down US$6.60 at US$1215.30/oz.
Today
The SPI Overnight closed up 2 points.
It’s service sector PMI day across the globe today, including in Australia. Caixin will represent China.
We will also see the local February trade numbers today ahead of this afternoon’s RBA rate decision, or lack thereof.
Rudi shall hook-up into Sky Business via Skype at around 11.15am to discuss broker calls.
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