Daily Market Reports | Apr 10 2013
By Greg Peel
The Dow closed up 59 points, or 0.4%, while the S&P rose 0.4% to 1568 and the Nasdaq gained 0.5%.
Alcoa’s result posted in New York early yesterday morning Sydney time was an earnings “beat” but nothing special, and indeed Alcoa shares closed flat on Wall Street last night. Yet the result was cited by traders in Australia as an impetus to start buying beaten-down material stocks once more, and slight moves up in commodity prices on Monday night added some impetus.
A resources-led rally was well underway by midday when China released its inflation data, and then all hell broke loose. February’s big jump up to 3.2% (annualised) CPI inflation concerned the world, as it suggests Beijing may have to start putting on the brakes. Yesterday’s announced fall to 2.1% in March was thus blessed relief, and a red rag to the resource sector bulls.
The fall in CPI was aided by a 1.1% quarter on quarter drop in food inflation to 2.7% annualised, and for the Chinese food prices are paramount to the cost of living. Lower CPI inflation might seem a good thing, but every silver lining has a cloud. In this case it’s China’s PPI (producer price index).
Wholesale inflation growth fell to minus 1.9% in March from minus 1.6% in February. Falling wholesale prices are not a sign of an economy enjoying robust strength. There is now a fear China’s March quarter GDP result, due next Monday, could disappoint.
This thought did not, however, stop the rampage on Bond Street yesterday. While the ASX 200 had fallen sharply from its March high, a 1.5% rally in a session is a rare event. And it wasn’t all resources, nor a suggestion of switching from overbought banks to resources. The banks flew too, as did just about everything else except healthcare. Perhaps there was some major offshore buying afoot?
In the last two sessions on Wall Street, the indices have suddenly kicked up around midday. Seems strange time zone-wise, but the suggestion is that’s when the Japanese roll in. The yen carry trade is back with a vengeance on a much weakened currency, with bonds and equities in the sights on either side of the Pacific. Yesterday the Aussie kicked up about a cent before settling 0.7% higher at US$1.0488 this morning. The Japanese finance minister said yesterday he had no intention of standing in the way of the falling yen, given its long rally up to late last year.
Interestingly, though, the Dow was up over 100 points at lunchtime before drifting off in the afternoon, which is the reverse of the recent intraday trend. A hint may lie in the fact the S&P 500 hit 1573 intraday, to mark a new all-time high. Twice in March the S&P marked new closing ATHs, each by one point, before the sellers moved in. Last night’s ATH was only three points above the last one before the sellers arrived in the afternoon. Is this our barrier? And if so, will the approaching month of May play true to form?
One reality worrying traders on Wall Street is the fact the US rally to this point has been led by defensives – utilities, healthcare and so forth – and not by the typical “risk-on” cyclical sectors such as materials and banks. For a bull market to truly develop, switching not just from bonds to equities, but also between equity sectors needs to begin.
Copper jumped 2% last night, leading a positive session for base metals, as London reacted to the Chinese inflation data. Brent crude rose another US$1.57 to US$106.23 and West Texas added US70c to US$94.06/bbl. Aiding the commodity price rises was a 0.5% drop in the US dollar index to 82.36, and aside from helping push up the Aussie, this drop also urged gold up US$12.50 to US$1585.30/oz.
The greenback dropped because the dollar-yen briefly touched 100 last night, and that’s where the yen shorts started covering. If you’ve been short yen you’ve picked up about 25%, and the magic 100 to the dollar seems as good as any place to take profits, just as new highs for the S&P seem an appropriate level to cash in. For the global rally to kick on, it seems these barriers will need to be breached.
Spot iron ore rose US$1.50 to US$139.10/t. With iron ore up, copper up and oil up, are the big material names set for another run today? The SPI Overnight rose 11 points, or 0.2%.
China will release its March trade balance today, just to add a bit more excitement, while Westpac will offer up its monthly local consumer confidence index. Tonight the minutes of the last Fed meeting will be released, but given the meeting was held before last week’s jobs release, they are a bit dated.
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