Daily Market Reports | Sep 16 2013
By Greg Peel
Wall Street was back in positive mode on Friday after an uncertain week and a soft Thursday session. The question is as to why the Dow rose 75 points or 0.5% and the S&P gained 0.3% to 1687 with the Nasdaq flat.
The Syria question lingers, although it seems Wall Street has decided there won’t be a strike against the Assad regime. If nothing else, the moment appears to be lost, but either way it is fairly clear the majority of Congress is against any further Middle East engagement. Economists were expecting the Syria issue to impact on consumer sentiment over the past two weeks, expecting a fall to 81.5 on the Michigan Uni gauge from 82.1 at the end of August, but the figure came in at a weak 76.8 to mark its lowest level since April.
US August retail sales were expected to rise by 0.5% but managed only 0.2%. There was some offset, with the July result being revised up to 0.4% from 0.2% and June up to 0.7% from 0.6%.
The producer price index rose 0.3% when 0.2% was expected, up from July’s flat result. But energy prices rose 0.8% on the back of stronger oil prices and food prices rose 0.6%, which when stripped out left the core PPI unchanged. There remains no sign of inflation in the US.
All of which begs the question: why start tapering QE? From the August jobs numbers the week before to Friday’s data there has been little suggestion of an economy beginning to recover robustly. Do we thus conclude that Friday’s strength in US stocks was an old “bad news is good news” response? Perhaps, but then there are few on Wall Street now who believe the Fed won’t announce a timeframe for tapering come the FOMC meeting this week. It then just becomes a matter of degree.
There is unlikely to be a lot of volatility between now and the Wednesday release of the Fed statement and Bernanke’s press conference. The US dollar index was steady on Friday at 81.52 while gold posted a slight rebound from Thursday night’s big tumble in rising US$7.00 to US$1327.90/oz. The Aussie was 0.3% weaker on Saturday morning at US$0.9245. The US ten-year bond yield is steady at 2.89%.
Base metals were mixed on Friday, with copper, nickel and zinc relatively steady but aluminium falling 1% and lead 2%, while tin gained 2%. The oils were also quiet, with Brent gaining US15c to US$112.78/bbl and West Texas losing US8c to US$108.60/bbl.
Spot iron ore fell US70c to US$134.50/t.
The SPI Overnight rose 10 points or 0.2%.
There should not be much in the way of volatility before Wednesday night, but the early morning bombshell this Monday is that Larry Summers has withdrawn his candidacy as Fed chairman, leaving Janet Yellen to most likely be granted the position as at the beginning of 2014. As an indicator of how markets might react to this news, the US dollar has fallen and the Aussie is suddenly up over 93c.
Yellen is seen as being most similar to Bernanke, offering up a measured approach to QE tapering. Yellen also remains a popular choice with Wall Street so on the assumption markets have now come to terms with expected QE tapering, this spike in volatility may prove short-lived. Tonight’s trade on Wall Street will tell.
It’s a relatively busy week for US data this week, Fed meeting not withstanding. Tonight sees industrial production and the Empire State manufacturing index, and tomorrow brings the CPI and housing market sentiment. On Wednesday it's housing starts, the Philadelphia Fed manufacturing index and the Conference Board leading economic index along with the Fed meeting and press conference. On Thursday it's existing home sales, and Friday wraps up with a quadruple witching futures and options expiry.
The attention will be on the Fed but all of Europe will be anxiously waiting for the German federal election to be held on Sunday. It appears that incumbent Angela Merkel has a better chance of retaining power than Tony Abbott was assumed to have of gaining it one week out from the Australian election, hence anxiety levels will not be too high.
June quarter eurozone unemployment data will be released tonight just to underscore the issue, and tomorrow’s ZEW investor sentiment survey will be closely watched.
It’s a relatively quiet week economically in Australia with highlight being the release of the minutes of the September RBA meeting tomorrow. Economists are now beginning to diverge in what was previously a more uniform opinion on the subject of further RBA easing. On the one hand we have deteriorating data, with the August jobs numbers the clear example, while on the other hand an investment property bubble is feared and that can be enough to keep the RBA on hold.
Tomorrow we’ll also see vehicle sales, and on Thursday it’s the local futures and options expiry for September contracts. The RBA will also release its September quarter Bulletin on Thursday.
New Zealand’s June quarter GDP will be released on Thursday while China will be on holidays on Thursday and Friday.
Rudi will appear on Sky Business today at 11.15am, Wednesday at 5.30pm and Thursday at noon.
(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)
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