Daily Market Reports | Jun 03 2016
By Greg Peel
The Dow closed up 48 points or 0.3% while the S&P gained 0.3% to 2105 and the Nasdaq rose 0.4%.
June Swoon
It’s as if someone called “last drinks” on the rally at the end of May and the punters have been gradually making their way out the door ever since. May saw the ASX200 rally from around 5250 to over 5400 and the past three sessions have us back at 5278. Were the market to break back down through 5250 it would be technically bearish, although we’ve seen a big jump in the futures overnight.
The change of heart between May to June has been all about a contradiction having arisen between Australian inflation and Australian economic output. The weak March quarter CPI result prompted the RBA to cut the cash rate and economists to predict at least one if not three more to come. This week’s March quarter GDP made the market think again. It’s a tough one, given typically one would expect strong economic growth to drive stronger inflation. But really all we’ve seen is solid sales of rocks while price and wage growth has been non-existent.
Then we can throw in the Fed, which Wall Street has come to believe will hike again in July, if not in June. A Fed rate hike by default acts like an RBA rate cut via the exchange rate.
The banks had been the major driver of the rally in May, on a supposed promise of lower local rates to come, which offer up the opportunity for mortgage repricing and eases the pressure on bad debts. The banks have now led the index back down again.
There was not much happening yesterday ahead of the day’s economic data releases. And again, the April data is underscoring the contradiction of the March quarter. Retail sales rose by a modest 0.2%, missing expectations and leaving the annual growth rate unchanged at 3.6%. This number points to low inflation. Meanwhile the trade deficit fell in April, driven by a 0.6% rise in exports and 0.8% fall in imports. The positive trade numbers echo the GDP strength.
The market sided with the GDP, and sold the banks down again, by an influential 1.2%. Materials backed up with a 1.0% fall on lower copper and iron ore prices. Healthcare lost 0.7% after one broking house downgraded the listed aged care sub-sector but otherwise there wasn’t much else going on.
Interestingly, the SPI Overnight has closed up 40 points or 0.8%, when Wall Street only rose 0.3% and commodity prices are again lower. Perhaps as we near 5250 in the physical, traders who sold at 5400 are now looking to get back in on better value.
Do Jobs Matter?
For the second session in a row, Wall Street fell on the open and rallied back to the close. This time the indices finished a little higher, such that the S&P500 is sitting above the 2100 level – significant because it is a round number.
Wall Street has now gone into summer-lite mode, with the long weekend signaling the beginning of the annual leave period. Volumes typically drop in the summer, and there was never going to be much going on last night ahead of tonight’s jobs number.
OPEC oil ministers held their regular mid-year meeting last night for the world’s amusement, which, blow me down, did not produce any agreement. The oil price is little changed.
Otherwise, the question on Wall Street last night was not so much “What’s the jobs number going to be?”, but more a case of “Does it really matter what the jobs number is?”. The “whisper” number is 160,000, which is in line with April and below the 200,000 trend of previous months. But there is a complication with regard the 35,000 Verizon workers who went on strike has month, and either way Wall Street is coming to believe the Fed has already made up its mind.
If it wasn’t for the Brexit vote, the Fed would hike in June. Because of the Brexit vote, they’ll hold off till July. So what impact is this final bit of data meant to have?
And these days it’s never quite clear whether Wall Street wants good news or bad news anyway. The S&P500 is back at its April high and only 34 points from the all-time high. There doesn’t seem to be a lot of rate rise fear.
Commodities
West Texas crude is up US15c at US$49.06/bbl.
Copper has fallen another half a percent and aluminium 2%.
Iron ore fell US$1.40 to US$47.90/t.
The US dollar index is slightly higher at 95.54 and gold is slightly lower at US$1210.40/oz.
The Aussie is down 0.4% at US$0.7227 and is right back where it was before this week’s GDP result.
Today
The SPI Overnight closed up 40 points or 0.8%.
It’s service sector PMI day across the globe today, including Caixin’s take on China.
US jobs tonight.
Asciano ((AIO)) holds an EGM today to discuss the wolves at the door.
Rudi will Skype-link with Sky Business this morning, likely around 11.05am to discuss broker calls.
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