Daily Market Reports | Mar 05 2014
By Greg Peel
The Dow rose 227 points or 1.4% while the S&P gained 1.5% to 1873 and the Nasdaq rebounded 1.4%.
The suggestion is Vladimir Putin was a little overwhelmed by the response to his aggression in the Ukraine, both in a diplomatic sense and in a financial market sense. A collapsing ruble and plunging Russian stock market may have alerted Putin to the reality he is not in the Soviet Union anymore. Whatever the case, Putin called an end to military exercises on Ukraine’s border and while not withdrawing from Crimea, he suggested there is no way Russia intends to take the Ukraine by force.
The diplomatic negotiations will continue but from a financial sense, it now seems all just like a storm in a samovar. Markets proceeded to bounce back last night as a result.
In Australia yesterday the tension in the Ukraine and the subsequent fall on Wall Street were largely ignored as the market focused on home grown issues.
Australia’s current account deficit shrank to $10.1bn in the December quarter, in line with expectations. The balance of goods and services swung to a $2.6bn deficit in the September quarter to a $247m surplus. Said CBA economists:
“The surplus posted in the balance of goods and services in QIV will probably be the first swallow in a likely long summer of trade surpluses ahead. Export volumes are likely to continue to climb in wake of the massive boom (now waning) in mining investment (and associated construction of mining infrastructure ) which will increasingly ‘morph’ into the mining production and export phase in a world of still very strong demand for Australia’s enhanced mining output.”
Residential building approvals surged 6.8% in January, surprising and elating just about everyone. And this time it was not about lumpy apartment blocks. Housing approvals rose 8.3% and apartment approvals rose 4.6%. Also released were December quarter non-residential building approvals, and they rose a healthy 18.8%.
It’s one of the first signs the RBA’s rate cuts are finally beginning to pay off, given the interest rate sensitivity of construction, and housing construction in particular. The numbers also suggest Australia’s economy can indeed transition away from mining, if not overnight.
It was thus with no surprise the RBA chose to leave its cash rate unchanged yesterday at 2.5% and reiterated its “on hold” stance. The statement repeated the line first appearing last month, suggesting “On present indications, the most prudent course is likely to be a period of stability in interest rates”.
There was nevertheless a subtle difference in Glenn Stevens’ Aussie dollar view. After becoming frustrated with a “too high” Aussie in the latter months of last year, in February Stevens suggested “The exchange rate has declined further, which, if sustained, will assist in achieving balanced growth in the economy”. A month later the Aussie has not declined any further, and presumably Stevens has learnt that “talking down the currency” often actually works. Hence in yesterday’s statement he suggested “The decline in the exchange rate seen to date will assist in achieving balanced growth in the economy, though the exchange rate remains high by historical standards”.
Australia’s home grown economic considerations overcame geopolitical tension fears on Bridge Street yesterday, but the Asian session overall was one of “we can’t really see this descending into something dangerous”. Australia bounced back 0.3%, Japan 0.5% and Hong Kong 0.7% before the sun rose over the Black Sea and Putin’s change of heart became clear. London bounced back 1.7%, France 2.5% and Germany 2.5%. Then it was over to New York.
When the opening bell rang, US stock markets basically “crashed up”. Almost all of the closing bell gain was achieved on the opening bell, and volumes were insignificant. The major indices pushed further ahead than they had fallen on Monday, taking the S&P 500 to another new all-time high. I suggested yesterday that but for the Ukraine, Monday night’s trade on Wall Street would have been positive on economic data. So if we add the two sessions together, we’re where we should be. The only thing lacking is conviction.
Just about everything that went up on Monday went down last night or vice versa. The US dollar index is relatively steady at 80.16 but gold fell US$14.20 to US$1337.70/oz. The US ten-year bond yield shot up 8 basis points to 2.69% to take it back to where it’s been hovering most of the year. The Aussie didn’t fall on Monday, and is up 0.3% to US$0.8949 this morning after yesterday’s local economic news, and despite Glenn’s best efforts.
Brent crude fell US$2.03 to US$109.17/bbl and West Texas fell US$1.70 to US$103.22/bbl, reversing most of Monday night’s gains.
The surprise moves were in base metals. Base metal prices did not really fall a lot on Monday night and for the most part they’ve been soggy all year, perhaps with the exception of nickel, and playing their own individual games. But someone lit a bomb under the LME last night.
The Russian back-down was cited, but then short-covering chimed in when it became clear speculators had chosen the moment to suddenly become “risk on”. The metals all rose around 1-3%, including a 1% gain for copper and 3% for previously weak aluminium.
Alas, the iron ore price fell US90c to US$116.80/t.
All up the Australian market has been about square over the last two sessions, suggesting no “bounce” required today. But the SPI Overnight is up 43 points or 0.8%.
Maybe we could get Russia to pretend to invade Moldova next.
Rudi will appear on Sky Business at 5.30pm.
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