Daily Market Reports | Dec 06 2016
By Greg Peel
The Dow closed up 45 points or 0.2% while the S&P rose 0.6% to 2204 as the Nasdaq gained 1.0%.
Wrong
Yesterday the local index futures were calling the ASX200 up 21 points before the opening bell, following Friday’s 50 point drop which surprised many and likely represented a square- up ahead of Sunday’s Italian referendum. The polls were suggesting the “no” vote would win.
And it did. Easily. For once the polls were right. Not “right”, it seems this morning, was the Australian stock market’s reaction. We fell another 40 points on the latest global “disaster” in what was more or less a single step-down. The index traded sideways for the rest of the session.
The SPI futures are up 50 points this morning, suggesting perhaps that if Friday’s move can be questioned, yesterday’s move was just plain misguided. Have we not learned anything this past six months? The world collapsed on Brexit, but within a couple of days had rallied back and headed north. The world collapsed on Trump’s victory, but not even for one trading session before a substantial rally followed. It therefore should have been obvious a “no” vote win was a buy signal.
It all sounds so obvious with hindsight.
Whether or not yesterday’s local trading session will prove at all relevant after today, it was clear within sector moves that the Italian factor was the driver. The biggest loser was healthcare, down 2.0% given the extensive European exposure of the big names in that space. Financials were down 1.2% because Italian banks have been shaky for a long time. Consumer discretionary fell 1.8%, led by the providers of pizza and toasted sandwich makers with strong European markets. So the list goes on.
The big winner on the day was utilities – a sector that has been beaten down severely of late. While defensive yield might offer a good place to hide in times of trouble, the 3.2% surge for the sector was more a case of ka-ching for DUET Group ((DUE)) following a takeover offer from the Chinese.
Speaking of the Chinese, stock indices were down across the Asian region yesterday – presumably on Europe fears – but a -1.2% fall for the Chinese index was the stand-out. Here we might point away from Europe and towards a certain President Elect who, much to the dismay of diplomats, likes to rattle Beijing’s cage. More than a few silent supporters on that front, I would imagine.
There was also quite an initial dip in the New Zealand market after Australia won the first ODI.
But we will likely dismiss yesterday’s moves today, if offshore markets and the SPI Overnight are any guide. What was interesting yesterday was that the ASX200 closed smack on 5400, providing a decidedly technical twist to the session.
New Record
The EU takes another quiet step towards disintegration and the Dow hits a new all-time high. The Italian stock market barely blinks, France rallies 1.0% and Germany 1.6%. The euro surges a full percent against the greenback. What do we make of it all?
Well for starters, the polls had for some time suggested “no” would win so markets had time to prepare. And this time the polls were right. Secondly, Brexit and Trump taught us that any politically-driven market plunge offers up a great buying opportunity. The relevant markets were indeed down initially, but not for very long.
And thirdly, so what? Italy’s constitution is not reformed, an election is called and maybe a clown gets in (there’s been a bit of that about lately) and maybe, sometime in the future, Italy votes to leave the EU. But meanwhile the market will roll on, and on Thursday night the ECB, if it deems necessary, will come to the rescue.
On Wall Street, the mood was more of a shrug than any startling. The stock indices opened higher and drifted along for the rest of the session. The Dow was the only major index to hit a new high but it underperformed the Nasdaq, which has been the main underperformer post-Trump.
There was also solid economic data to price in. The US service sector PMI leapt to 57.2 in November from 54.8 in October.
Commodities
The euro is up 1% so the US dollar index is down 0.6%. While commodity prices have not been following a strictly inverse relationship to the greenback of late, this dip seemed enough to at least spark some short-covering on the LME. Aluminium closed up 1.5%, lead and nickel 2%, and copper and zinc 3.5%.
Iron ore rose US40c to US$78.40/t.
West Texas crude drifted off US48c to US$51.19/bbl.
Neither the dip in the greenback, nor the implications of the Italian referendum, did anything for gold. It’s off slightly at US$1170.70/oz.
The Aussie is up 0.4% at US$0.7473.
Today
The SPI Overnight closed up 51 points or 0.9%.
The RBA will meet today and leave its cash rate on hold.
The Australian September quarter current account numbers are due today, including the terms of trade. If they don’t show significant improvement, all previous quarterly data, including yesterday’s disappointing corporate profit numbers, point to a very weak GDP result tomorrow.
Rudi will connect with Sky Business through Skype around 11.15am today to discuss broker calls. Tonight, from 8-9.30pm he will host Your Money, Your Call Equities.
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