Daily Market Reports | Jan 31 2014
By Greg Peel
The Dow rose 109 points or 0.7% while the S&P gained 1.1% and the Nasdaq surged 1.9%.
The final reading on HSBC’s China manufacturing PMI for January was released yesterday ahead of the New Year break. At 49.5 the result was in line with the flash estimate of 49.6 but down from December’s 50.5, representing the first slip into contraction in six months. It was not the best day for this number to be published on Bridge Street, given the weak lead in from Wall Street and growing uncertainty as 2014 fires up. At the end of the day we could have seen a lot worse than the 40 point fall in the ASX 200, nevertheless, which was largely indiscriminate.
With Australia Day past us and kids now back to school, we call the summer break finally over and assume everyone’s back to work. No more excuses for thin volumes or sharp moves. Next week the local results season kicks off in earnest, and macro influences aside, that’s when the fun will really start.
After Wednesday night’s not unexpected but worrying Fed taper confirmation, last night was when the Fed’s policy decision would be put to the test, with the release of the US fourth quarter GDP.
On first estimate, the US economy grew at an annualised rate of 3.2% in the December quarter, in line with expectations. This is down from the 4.1% rate booked in the September quarter but a robust result in the face of the two-week government shutdown in the period. For the full year 2013, the US grew by 1.9% compared to 2.8% in 2012, but the first two quarters were very much weakened by fiscal policy, specifically the so-called “sequester” which saw government spending slashed and taxes increased.
The most positive result was a 3.3% increase in consumer spending, which represents around 70% of GDP (albeit health and other essential services are significant in that figure), which compares to a 2.2% average since the US emerged from the post-GFC recession. Inventory growth was strong, suggesting perhaps slower restocking in March, but the trend is healthy. Not so healthy was housing, which registered its slowest quarter in fourteen after taper-talk sparked mortgage rate increases.
Arguably the most fundamental development evident in the numbers was apparent in the terms of trade. Exports rose 11.4% in the quarter while imports rose only 0.9%, reflecting the growth of US energy self-sufficiency in the wake of the shale revolution.
As is apparent in Wall Street’s reaction in this time of monetary policy uncertainty, the Fed’s tapering program is justifiable.
Aiding the positive session on Wall Street were last night’s earnings results. The star of the session was Facebook, which reported after the bell on Wednesday night and rallied 15% last night. Seems the old Faceplant isn’t yet yesterday’s fad after all. (Facebook drove the big Nasdaq move last night). Visa (Dow) beat on earnings and revenue for a 2% gain while positive responses were also posted for results from Qualcomm and ConocoPhillips.
The downer on the night was an 8.7% fall in pending home sales in December, but once again the heavy snow was blamed.
The other positive last night is that it appears the Turkish government has managed to talk the lira into a standstill. The Turkish central bank applied shock and awe earlier in the week by raising its cash rate to 12% from 7.75% but relief proved only fleeting, with the Fed’s taper confirmation on Wednesday night sending the lira tumbling and Turkish bond yields soaring once more. The government stepped up to talk turkey last night and insist it would take whatever measures were necessary to stem the flow. Stability returned, at least for now.
Throughout the recent emerging market currency crisis the US dollar index has remained steady, reflecting little net movement among developed market currencies. But last night the dam broke on the strength of the US GDP result and the index jumped 0.6% to 81.09. There was no a big turnaround in the bond market, with the US ten-year yield only gaining back 2bps to 2.69%, but gold was a victim with a US$17.30 fall to US$1244.40/oz.
The Aussie was also stronger by association, rising 0.6% to US$0.8785.
Base metals had their first chance to respond to the second Fed taper last night and while moves were all to the downside, aided by the stronger greenback, only lead and nickel fell by more than 1%. The iron ore market is now closed for Chinese New Year. The oils were again quiet, with Brent rising US10c to US$107.89/bbl and West Texas up US55c to US97.91/bbl, while natgas celebrated its new March delivery front month with a 9% fall to US$4.93/mmbtu.
Clearly Wednesday night’s natgas surge was due to the futures rollover and delivery squeeze.
The SPI Overnight has managed a tepid 16 point or 0.4% increase.
Australian private sector credit data are due out today along with a monthly data dump from Japan. China is now shut (although Beijing’s PMI will be released on the weekend).
There is a final raft of resource sector production results due out today ahead of the earnings season which begins in earnest on Tuesday.
Gong Hei Fat Choi.
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