Daily Market Reports | Nov 01 2016
By Greg Peel
The Dow closed down 18 points or 0.1% while the S&P was flat at 2126 and the Nasdaq was also flat.
End of Month
Investors do really like putting the month of October to bed each year, it's not being the historically weakest month of the year – that’s September – but the month most prone to sharp bouts of volatility. To get it out of the way is a relief, and yesterday it appeared a relief trade was in play.
In the morning the local market looked as if it was set to go nowhere, which is unusual for an end of month session in which profit-taking/loss cutting and window dressing are typically evident. But sure enough, from lunchtime things started to move. A steady rally ensued for a close of up 33 for the ASX200.
A market-leading 1.7% gain for the utility sector is the give-away – this bond-proxy sector has had a shocker this past month on US rate rise assumptions. Similarly we saw gains in telcos and healthcare, and the banks managed to struggle higher as well. These are the sectors that have been steadily sold off. Materials made a comeback after the Sell Australia trade of last week, while a 0.3% drop for energy is likely a bit too timid. Oil prices are off 4% overnight.
Star of the day was lithium producer Orocobre, which shot up 20% for no immediately obvious reason. The company put out a September quarter production report that actually disappointed but suggested a trend in the right direction after earlier difficulties. The stock has slid a long way from its July peak, set on lithium price exuberance, and with Macquarie and Deutsche Bank both reiterating their Buy ratings yesterday (not upgrading, as other reports have suggested), someone or ones piled in.
Peer Galaxy Resources ((GXY)) was dragged up 6% in the updraught.
Having wrapped up October, traders will likely look to a benign session on Wall Street and the fact this First of November happens to be a Tuesday as an excuse to do very little today. There will be a wary eye kept on the RBA but the odds of a rate cut are considered very low. If the RBA does happen to cut it might ruin a few Cup plans.
Cautious
I say that a 0.3% drop for the local energy sector yesterday seemed timid because with no agreement being reached at the OPEC meeting held over the weekend, it was a pretty sure bet oil would take a tumble last night. And sure enough, WTI is down 4%.
This provided one element of weakness for Wall Street last night, and Hillary Clinton provided the other.
Wall Street remains concerned the reopened FBI investigation into the Clinton email scandal will mean the unthinkable may transpire. And while the latest polls suggest the new investigation has not changed voters’ minds at this late stage, Trump has closed the gap to a level of statistical margin for error nonetheless. At least, in one poll. Others say differently.
On the flipside, US personal spending rose a better than expected 0.5% in September – the biggest increase since June. Incomes rose 0.3%. The headline personal consumption & expenditure (PCE) inflation measure rose 0.2% to mark a two-year high annual rate of 1.2%.
The core rate that the Fed likes to watch rose 0.1% for 1.7%, unchanged from August. But the bottom line here is that this important data set further cements the likelihood of a Fed rate hike in December.
Wall Street now expects such a hike and is ready for it. On that basis, anything that might upset that assumption in the meantime, and introduce renewed uncertainty, would likely upset investors.
It was end of month for Wall Street last night and while a little choppy, it was uneventful. The bad news of oil and Clinton was countered by the good of increased spending and greater Fed certainty. Unlike the Australian market, which has taken a tumble, Wall Street has only edged modestly lower of late. The earnings report run-rate continues to be positive but there are too many events to get through before making any new major investment decisions. The election now being the most obvious source of uncertainty.
Which is why no one much expects the Fed to raise on Wednesday night, ahead of the election next week and the October jobs report on Friday.
Commodities
West Texas crude is down US$2.05 at US$46.70/bbl.
Glencore announced yesterday it would put a zinc mine in Mt Isa under care & maintenance. While this is due to the current reserve having been mined out, rather than low zinc prices – zinc has been the best performer amongst the base metals this year – the zinc price on the LME still jumped 3% last night. The only other move of note was a 1% gain for aluminium.
Iron ore rose US70c to US$63.80/t.
The US dollar index is steady at 98.34 and the Aussie is 0.1% higher at US$0.7611 as we await the RBA decision.
Gold is up US$3.20 at US$1278.10/oz.
Today
The SPI Overnight closed down 9 points. Oil will have been the influence.
It’s manufacturing PMI day across the globe today including in Australia, while Beijing will release both the official Chinese manufacturing and service sector PMIs.
In Australia we’ll also see house prices, ahead of the rate and the race. Victoria is shut for business.
The Bank of Japan also holds a policy meeting today but given the tweaks made at the last meeting, nothing untoward is anticipated.
There are no local corporate events today, funnily enough.
Rudi will connect with Sky Business, through Skype, at 11.15am to discuss broker calls.
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