Daily Market Reports | Mar 12 2014
By Greg Peel
The Dow fell 67 points or 0.4% while the S&P lost 0.5% to 1867 and the Nasdaq fell 0.4%.
The flat close for the ASX 200 yesterday was a resilient display featuring only a 0.6% fall in the materials sector on an 8% fall in the iron ore price overnight. On Monday the materials sector fell 4% on a 2% fall in iron ore, albeit China’s weak trade data and news of a corporate default were instrumental in that shake-out. The big miners are not concerned over a de-rating of the iron ore price, analysts have been expecting one for some time, and yesterday the buyers clearly saw value emerging, particularly where dividend yields are involved.
Nor did yesterday’s news from the Chinese parliament evoke any further panic. Beijing has elected to starve underperforming steel mills of credit and so kill three birds with one stone –excess risky lending, excess inefficient capacity and excess pollution. While such a move may cause volatility in iron ore and thermal coal demand in the short term, the hope is short term pain will lead to the longer term gain of more stable Chinese growth.
Yesterday’s weakness in the NAB business confidence survey results for February represented not so much a drop into fear but more a regression towards the confidence trend after initial election exuberance. The prevailing conditions index dropped 5 points to zero from January and the confidence index fell 2 points to 7. The historical trend for confidence sits at 5 and economists were quite surprised just how confident Australian businesses were feeling in December and January. The crumbling manufacturing sector featured heavily in the falls.
The good news overnight is that the iron ore price stopped falling, and instead rose US20c to US$104.90/t. The bad news is that speculators on the LME have hit the dump buttons on fears China’s crackdown on excess and shadow credit will extend into commodity-backed financing. Technical levels were breached in metals last night sparking a cascade of stop losses, with copper falling another 3% and other metals falling 1-2%. Only nickel remained unscathed.
The implications of forced Chinese slowing and commodity price falls were felt on Wall Street last night, which rocked and rolled but eventually traded south. In economic news, US wholesale inventories rose 0.6% in January when wholesale sales fell 1.9%, suggesting merchants have over-ordered and are stuck with stock.
Two of the major victims of the GFC – the quasi-private, government-sponsored Fannie Mae and Freddie Mac mortgage providers – are to be quietly dismantled under new proposed legislation and replaced with a scaled-back government mortgage guarantee and greater financial responsibility for private sector mortgage providers. The US government bailed out both companies in a heartbeat after the fall of Lehman and since that time the two have between them backed around 90% of all new mortgages. Suffice to say shares in both took a tumble last night.
The China-related commodity sell-off extended to US energy markets last night, with West Texas crude falling US$1.37 to US$99.75/bbl. Brent crude is more closely tied to European energy supply which is in a state of uncertainty as the Ukraine situation plays out. It rose US39c to US$108.34/bbl.
Ukraine tensions continue to simmer and are being held responsible for the rising gold price, which last night added US$7.80 to US$1347.90/oz. The US dollar index was steady at 79.77 following no announced change of policy from the Bank of Japan, while the Aussie is down another half a cent to US$0.8969 on the China connection.
Despite my doubts the SPI Overnight traders got it right yesterday with a flat call. This morning they have sold the SPI down 25 points or 0.5%.
Today we will find out how Australian consumers are feeling, other than patriotic. Having hoovered up every can of SPC baked beans and Two Fruits they could find on the shelves, perhaps consumers will feel empowered in Westpac’s confidence survey, due today. Or not.
Housing finance data are also due for release and have become a prime focus of overall market sentiment of late.
Rudi will appear on Sky Business this evening at 5.30pm.
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