Daily Market Reports | Dec 17 2012
By Greg Peel
The White House meeting between President Obama and Republican majority leader John Boehner held on Friday morning Sydney time proved to be brief, with both sides suggesting no more than discussions had been “frank”. This was not enough to provide Wall Street with much optimism on Friday night.
However, media reports over the weekend suggest Boehner has subsequently offered to accept the expiry of the Bush tax cuts for families earning in excess of US$1 million. Obama's threshold sits at US$500,000, but importantly this offer represents the first real sign of compromise. Previously the Republicans have indicated they are unmovable on tax hikes. The trade-off offered is cuts to entitlements, and here there is potential for plenty of heated argument. But we might just have seen the first real step towards putting the fiscal cliff to bed before year's end.
Wall Street didn't know this on Friday, thus Friday's session was another overhung by Cliff. Nor did it help that the launch of the iPhone5 in China on Friday drew less excitement and subsequent sales than the previous device launch. Apple shares have already been tumbling, aided by traders looking to lock in whatever profits are left ahead of any tax policy changes, and fell another 3.8% in Friday's session. The fall weighed on Wall Street, and the Nasdaq finished down 0.7%.
Cliff and Apple managed to undermine the good news. HSBC's December flash manufacturing PMI for China had been released in Friday's Asian session and it showed a fifth consecutive increase, to 50.9 from November's 50.5. The Shanghai stock market has been hammered all year on China's economic slowdown, but the recent apparent turnaround in China's fortunes – of which this PMI is further evidence – has seen the Shanghai index bottom out in December. Friday saw a jump of 4.3%.
The eurozone also posted a flash manufacturing PMI on Friday night which came in a 46.3, up from 46.2 – still contraction, albeit a tick slower. It was the equivalent US number which came as a shock, however, rising to a very expansionary 54.2 from 52.8. Economists had expected a fall to 51.8.
The good news was not enough to outweigh Cliff concerns nevertheless. Tonight's session will thus be interesting in the wake of the weekend's developments. On Friday, the Dow closed down 35 points, or 0.3%, the S&P lost 0.4% to 1413 and the Nasdaq, as noted, dropped 0.7%.
A change in government is all but confirmed in Japan after the weekend's election. Counting indicates Shinzo Abe's conservative LDP will govern with a handsome majority. This represents a return to the status quo after a brief three year hiatus in which the Japanese decided to try the Democratic Party, without success.
Abe is all for unlimited money printing in order to stem the strength of the yen, which undermines Japan's export-dependent economy. It is effectively a counter against the Fed 's QE programs. The US dollar has been rallying against the yen in expectation of an Abe victory, so Friday night was a chance to take profits ahead of the actual event. The US dollar index hence fell 0.3% to 79.59.
Gold remained uninspired by the dollar drop, slipping US$2.30 to US$1695.20/oz, while the Chinese PMI was a boost for the Aussie, which is up 0.4% at US$1.0570.
Base metals were also stronger on the Chinese news, albeit only mildly so. The oils were more responsive, with Brent rising US$1.24 to US$109.15/bbl and West Texas US84c to US$86.73/bbl.
The Chinese spot iron ore price wasn't particularly shy, jumping another US$2.90 to US$129.30/t.
The SPI Overnight fell 10 points, or 0.2%.
Has Boehner broken the impasse? Might this week see a scramble towards a resolution for Cliff so US politicians can go home for the Christmas break? It's a long shot, but despite a couple of mildly week sessions rounding out last week, Wall Street remains quietly confident of a deal being done sooner rather than later. Cliff will nevertheless continue to overhang this week's proceedings – a week which might otherwise prove volatile anyway.
On Thursday in Australia and Friday night in the US we will see the expiries of stock and index options and futures. One can never preempt which way markets will be pushed at expiry time, but there will likely be some squaring up ahead of Christmas holidays.
It will be a busy data week in the US this week, particularly with regard to housing. Tonight sees the Empire State manufacturing index, and Tuesday the housing market sentiment index. Wednesday brings housing starts, while Thursday sees existing home sales, the FHFA house price index, the Philadelphia Fed manufacturing index, and another revision to the September quarter GDP. The market is expecting a tick up to 2.8% from 2.7%.
Friday it's personal income and spending, the Chicago Fed national activity index, the Michigan Uni consumer sentiment index, and the aforementioned “quadruple witching”.
It's a quieter week economically in Australia, in what will be the last active week of trading before most of the market takes off for a summer break. The ASX is open for a half-day only next Monday, as is the NYSE.
Tomorrow brings the minutes of the last RBA meeting. The market will be keen to establish whether the central bank really is implying 3.00% will be as low as we go. Westpac will publish its leading economic index on Wednesday and Thursday sees the aforementioned expiries.
There is a smattering of pre-Christmas AGMs this week, the highlights being Incitec Pivot ((IPL)) on Tuesday, ANZ Bank ((ANZ)) on Wednesday and Graincorp ((GNC)) on Thursday.
New Zealand will release its September quarter GDP result on Thursday.
Rudi will appear on Sky Business today at 11.15am, in a special two-hour session of Your Money, Your Call from 7pm on Tuesday, and on Lunch Money at noon on Thursday.
FNArena will suspend daily service from Friday this week for the Christmas break. The website will remain accessible and normal service will resume for 2013 on January 14.
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