Daily Market Reports | Mar 08 2013
By Greg Peel
The Dow closed up 33 points, or 0.2%, while the S&P gained 0.2% to 1544 and the Nasdaq added 0.3%.
It was of no surprise that the Bank of Japan made no changes to monetary policy following its meeting yesterday. Those changes, which will involve extensive monetary stimulus, will come in April after the new governor replaces the old. It was of some surprise to markets, nevertheless, that both the European Central Bank and Bank of England elected to make no changes to monetary policy following their meetings last night.
ECB president Mario Draghi admitted his committee had discussed the possibility of cutting the central bank’s cash rate from 0.75%, but decided it was not necessary at this time. Despite recent weak data, Draghi maintained the eurozone recovery path remains unchanged and noted that political turmoil in Italy has not evoked more than a passing shrug from stock and bond markets. Last year Draghi declared the ECB would do whatever it takes to support the euro, and announced the readiness of an Outright Monetary Transaction (OMT) program amounting to bond purchasing, or QE by any other name.
The OMT is there to help those who need it, if requested. Last year markets assumed Spain would stick its hand up, but this has not happened and all has gone quiet in Iberia. The threat of the OMT alone has been enough to ensure a cap on Spanish bond rates and hence Spain’s borrowing costs, while the strict austerity measures which come with any OMT request are enough to ensure the Spanish government will not seek a bail-out unless the situation is critical.
The OMT is also there for Italy. However the problem in Italy is that Italian voters have rejected austerity in ousting Mario Monti and in directing votes towards anti-austerity candidate Brillo and roll-back-austerity candidate Berlusconi. If whatever tenuous government emerges from the current deadlock in Italy wants to put its hand out for help, the OMT cannot be an option unless even stricter austerity is forced upon the people.
The Bank of England was never going to cut its cash rate from 0.5%, which has been in place now for four years, but the committee did discuss an increase in QE from the current 375bn pound level before deciding not to do so. With the UK economy looking increasingly weak, economists nevertheless believe it’s only a matter of time.
Both the euro and the pound shot up after respective “no change” announcements, sending the US dollar index down 0.5% to 82.09.
On last night’s numbers, US weekly new jobless claims have fallen to a monthly average of 335,000 – well below the 400,000-odd figure that is deemed to increase unemployment. The release is wedged in between Wednesday night’s better than expected increase in private sector jobs and whatever tonight’s non-farm payrolls number will bring. The “whisper number” is 200,000, but whisperers are often proven to be over-excitable.
US chain store data for February were not so encouraging, showing a 1.7% rise when the industry body had guided to a 2.0-2.5% increase. The January payroll tax increase, general spending cut concerns and heavy snow in the north east were all cited as reasons shoppers stayed home.
I have noted this week how both Australia’s manufacturing and service sectors showed a significant slowing in the pace of their lengthy contractions in February. Well they have both been pipped by the construction sector, which yesterday posted an increase in its PMI to 45.6 from 36.2, akin to launching the parachute brakes on the space shuttle. The construction number remains the lowest of the three, but the extent of increase is the highest by far. The RBA is looking vindicated.
The fall in the US dollar provided an impetus for stronger commodity prices, with base metals posting up to 1% gains and West Texas crude jumping US$1.11 to US$91.54/bbl. Brent crude remained steady at US$111.08/bbl on a lack of European stimulus. Spot iron is up US50c to US$146.30/t.
The Aussie is 0.3% higher at US$1.0272, while gold is still confused, falling US$5.10 to US$1576.40/oz.
After a soggy day on the local bourse yesterday, the SPI Overnight is up 20 points or 0.4%.
Tonight all eyes will be on US jobs, while tomorrow China will provide a monthly data dump after releasing its February trade balance today.
The US springs forward to summer time over the weekend, while Australia retains summer time until the week after Easter. In the interim, the NYSE will close at 7am Sydney time instead of 8am.
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