Daily Market Reports | Apr 01 2010
By Greg Peel
The Dow closed down 50 points or 0.5% while the S&P lost 0.3% and the Nasdaq 0.5%.
One might have expected a bit of a volume lift for the close of the quarter irrespective of it being a holiday week, but it wasn't to be. There appeared to be no pitched battle between the profit takers and the window dressers and if anything the indices simply drifted off toward the close.
Such a close is in contrast to the tenor of the stock market over the March quarter, which was one of quiet “melt up”. With no alarmingly obvious impetus, other than gradually improving company earnings and strength in commodity prices, Wall Street managed to add over 4% for the quarter which proved the best first quarter result since 1999. It's a pity there were only about half a dozen players on the field to enjoy it.
April is traditionally a strong month for equities across the globe and particularly in Australia before we reach May of “sell in May and go away” fame – a rule which would have cost many money in 2009.
Despite the quarter ending last night, all eyes remain on Friday night's US jobs number. Commentators have been talking each other up over the past week, such that consensus of 200,000 new jobs added has been whispered higher to 300,000 or even more. But last night provided a bit of a reality check.
The ADP private sector jobs report is a privately calculated number but one Wall Street pays attention to as a precursor for the official non-farm payrolls number which includes public sector figures. Economists had expected 40,000 new private sector jobs to be added but the result came in as a 23,000 job loss. The Dow immediately plunged 75 points on the early news.
The complication, however, is that the US census currently underway has required the addition of a lot of public sector temporary jobs and as such the optimists are still expecting a solid net number of job additions in Friday's release. Census workers will be employed until August, so we will have to wait that long to see just what the underlying jobs trend really is. The other factor is a bounce-back from snow-related job losses in February.
Throughout all of this speculation there is one screamingly obvious question: Can't the government just tell us how many census workers have been employed? It would appear not.
Stocks recovered ground through to lunch time nevertheless before a sell off on disinterest in the final hour. There was more disappointment however, in the form of the Chicago purchasing managers' index of manufacturing activity in the Chicago area. It fell from 62.6 in February to 58.8 in March which was a bit more than expected. But it's still over 50, which means it's still expanding.
The Chicago PMI is nevertheless seen as precursor to tonight's national ISM manufacturing index which economists are hoping will rise from 56.5 to 57.0. The ISM has been steadily rising all through 2009 with only a couple of stumbles and without ever posting two consecutive months of contraction. As a stock market leading indicator, Wall Street is concerned that the ISM contracted in February so another contraction may mean economic growth is tipping over, and thus the stock market is ready to correct from its highs once more.
A weak ISM and a weak jobs number combined would likely mean we enter April proper in a corrective mood.
Yet factory orders increased by 0.6% in February, beating a 0.5% expectation, as inventory rebuilding continues.
The ADP report was enough to see the US ten-year bond rate slip a few bips last night to 3.83%. The bond market will be in focus on Friday as the only US financial market open for trade when the jobs report is released. There was no fanfare, but last night spelled the official end of Fed quantitative easing as the shutters came down on the Fed's mortgage security purchase program.
And across the pond, quantitative easing was winding down as well. The ECB offered its final round of 6m loans to banks last night – the ECB's answer to a central bank buying its own Treasury's bonds, given there is no eurozone bond – and of 70m euros-worth expected to be snaffled only 17m was actually taken up. This indicates European banks are feeling more comfortable with their balance sheets now.
There was also surprise when it was announced the eurozone CPI jumped a full 0.9% in March or 1.5% year-on-year when a 1.2% year-on-year result was expected, and more surprise when the German unemployment rate fell from 8.1% to 8.0% when a rise was expected. The eurozone rate nevertheless rose from 9.9% to 10.0%, but the figures are clearly evident of the economic disparity in the EU between, for example, the likes of Germany on the one hand and Greece on the other.
The numbers were enough for forex traders to feel happy with the euro again nevertheless, so the US dollar index fell half a percent last night to 81.09.
This allowed gold to reverse yet again, adding US$9.50 to US$1112.50/oz. Oil added US$1.39 to US$83.76/bbl despite weekly inventories showing a build.
Oil finished the quarter up 5.5% for its fifth straight quarterly increase. But the US energy sector has failed to capitalise on the move in share price terms for the simple reason the natural gas price has been collapsing in the other direction. Natural gas fell 20% in March to be down 31% for the quarter, weighed down by sheer oversupply.
Typically, the oil to gas price ratio trends over time at around 10:1. But as at last night that ratio has blown out to 21:1. Is it thus a good time to buy natgas? Unfortunately a lot of traders thought so much earlier in the quarter. While there are two distinct gas markets operating in the globe, the US gas price puts an interesting spin on Australia's increasingly popular CSM LNG projects.
Base metals were also boosted by the weaker US dollar last night, but also met some end of quarter profit-taking. Copper stood still but aluminium jumped 2%. The star of the hour however is nickel, which added 3%. Nickel has proven over the past few years to be a base metal leading indicator.
The Aussie gave up a little bit of ground to US$0.9177, but not as much as yesterday's weak retail sales figure might have sparked.
The SPI Overnight ignored Wall Street and rallied 13 points or 0.3%.
Today in Australia we learn the trade balance and the AiG manufacturing index. Australia kicks off the round-the-world manufacturing index party which extends through Japan, China, the UK, Europe and the US by tonight.
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