Daily Market Reports | Jun 03 2014
By Greg Peel
The Dow closed up 26 points or 0.2% while the S&P gained one point to 1924 as the Nasdaq fell 0.1%.
The Strolling Bones sing Gimme Shelter, but in Australia and around the world those of the same vintage sing loudly Gimme Yield. At the end of the day if a fall in the iron ore price resonates to send the wider Australian stock market lower by default, the result is an opportunity to pick up yield stocks at more attractive levels. Hence the big fall in the iron ore price on Friday night sent the ASX 200 only briefly lower yesterday before the buyers rolled in.
The banks made the difference on the index, along with the telco, while healthcare and consumer staples were also strong and industrials were by no means left behind. Analysts last week were at pains to point out that the big diversified miners have a substantial price buffer in their low-cost iron ore operations and with capital management in the offing, were looking like a bargain in the wake of panic selling.
Meanwhile the mainstream media were having apoplexy yesterday over a 1.9% fall in the monthly average house price – the first fall for twelve months and the biggest fall in five years. You’d think it was the sky that was falling, despite the 11% rise in the average price over the past twelve months, but at some point prices just have to stop rising. Such sensationalism doesn’t do much for consumer confidence.
More concerning were the monthly building approval numbers, with residential falling 5.6% in April. It was all about apartment block approvals, which fell 13.5% to be 17% lower than a year ago, while single house approvals fell only 0.1% to be 16% higher than a year ago. Non-residential (ie office blocks etc) fell 37% to be 53% lower than a year ago, but the CBA economists are confident demand for new office blocks and hotels around Australia’s CBDs will improve in coming months. And the non-res numbers are very lumpy.
In the March quarter data, company profits grew by 3.1% to be 10.9% higher year on year and growth is at its highest level since the December quarter 2010. Wages grew 0.2% to be up 2.9% yoy and growth remains tepid on unemployment concerns. Inventories fell 1.7% having fallen 0.6% in December and exceeded expectations of a 0.4% fall. This is not good news, and worth a negative half a percentage point off GDP forecasts.
On all of the above the Aussie plunged 0.7% to be sitting at US$0.9247 this morning, as traders this week decided the RBA won’t be raising anytime soon. Next week they’ll probably change their minds again. And the ASX 200 closed up a defiant 26 points, with the rise in the Chinese manufacturing PMI released over the weekend providing some offset to iron ore price fears.
There was also some excitement in Australia’s May manufacturing PMI result of 49.2, up from 44.8 in April, and suggesting perhaps a move into expansion soon. But then no one’s yet explained to me why every other nation’s PMIs shift incrementally month on month and Australia’s flies around like a bird trapped in a lounge room. That number could well be 43 in June.
Australia is not the only country having trouble with PMIs, nevertheless. Last night the US Institute of Supply Management, publisher of the US manufacturing PMI, released a May number of 53.2, suggesting an unexpected fall from April’s 54.9 and sending the stock markets south. But the vigilant Wall Street Journal was not convinced and told the ISM, which then admitted an error and re-released a number of 56.0, only to pull that as well and settle finally on a result of 55.8.
It doesn’t do much for confidence in markets and data. The shemozzle would have really done the HFT computers’ heads in. Stock markets ultimately turned north again to close slightly higher (each rise for the Dow and S&P is another record at this stage) but the damage was somewhat more telling in the US bond market, which has clearly become a bit twitchy since all this “why are bond yields so low?” discussion has become ubiquitous. On the first, PMI result, the ten-year yield ticked down a little, but when the correction was made there was some pretty frantic bond selling. A rise of 8 basis points for the ten-year to 2.53% on one little PMI error just goes to show how over-long the bond market is.
The UK continues to post rapid growth numbers in its manufacturing sector, despite a tick down in May to 57.0 from 57.2. A fall in the eurozone PMI to 52.2 from 53.4 only further increases the odds of the ECB taking action on Thursday night.
The contrasting US and European manufacturing numbers affected a 0.3% rise in the US dollar index last night to 80.63. Gold fell US$7.60 to US$1243.70/oz.
Base metal traders were encouraged by the Chinese PMI and also by the US version, which was 56.0 as far as the LME was aware before the close. The holiday in China meant volumes were low, but across-the-board gains including 1.2% for copper were posted.
There will be at least some relief in the local materials sector today with a US30c rebound overnight in the iron ore price to US$92.10/t.
The SPI Overnight closed up 9 points.
Australia’s March quarter trade numbers will be revealed today within the current account release while April retail sales will be closely watched and the RBA will meet and do nothing. Beijing will release the official Chinese service sector PMI and HSBC its China manufacturing PMI.
A flash estimate of the eurozone May CPI will be published tonight which is really the crux of the matter for the ECB. Eurozone unemployment numbers are also due.
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