Daily Market Reports | Jun 13 2014
By Greg Peel
The Dow fell 109 points or 0.7% while the S&P lost 0.7% to 1930 and the Nasdaq dropped 0.9%.
It’s Friday the thirteenth, and a full moon. Be afraid.
There was good news and bad news in yesterday’s Australian jobs numbers. Economists did not expect a loss of 4,800 jobs but given this represented a loss of 27,000 part-time jobs against a gain of 22,200 full-time jobs, the signs are healthy. We recall that for Australia, the GFC did not so much evoke widespread sackings, rather employers responded by cutting back hours worked. In 2014, part-time jobs have fallen a net 17,000 and full-time jobs have risen a net 95,000.
The unemployment rate was steady at 5.8% despite economists anticipating a tick-up. But a fall in the participation rate was the reason which is not so positive. Either way there’s a growing belief we’ve seen the peak in the unemployment rate, contrary to earlier fears of a push toward 6.5%.
The Aussie is certainly higher this morning, up 0.4% to US$0.9429, although the Aussie was sucked up to some extent in the vacuum created by yesterday’s RBNZ rate rise and a subsequent rally in the Kiwi. And in recent years the Aussie has become something of a geopolitical safe haven.
ISIS has continued its push south and is now within 100km of Baghdad. The terrorist group is presently in control of significant Iraqi oil assets but the big prizes lie to the south. To date Iraqi troops have abandoned their posts and fled, which is presumably not what the Americans taught them to do, although the suggestion is there are other forces at work.
Northern Iraq is Sunni, southern Iraq is Shia. ISIS is Sunni and the bulk of the Iraqi army is Shia. The suggestion is the Iraqi Shia army was not predisposed to protecting Sunnis from Sunnis but having fallen back, will now protect Shia Iraq in the south to the death. And would you believe, Iran, which is Shia, has offered assistance. Before Saddam invaded Kuwait, Iraq and Iran had been at war for a decade. Then there’s Saudi Arabia, which is Sunni, and there have been rumours of the Saudis supporting ISIS.
Thus a full-blown Middle East religious war is in the offing, Muslim versus Muslim. Tensions highlight the fact Britain arbitrarily drew the borders that divided the Arab and Persian worlds into Iraq and Iran after WWI, with oil assets the prime consideration and religious sectarianism given no attention.
(Message to Ban Ki: Get ‘em all in a room with a big hookah – that’s hookah – redraw the borders, and then we can all get some sleep.)
Aside from a slight bounce at the death, Wall Street traded in a straight-line downward trend all session. Having been a mere distraction in Wednesday night’s trade, Iraq suddenly became a real concern. But it was not just geopolitics driving weakness. The selling began with the release of the May US retail sales data.
We recall that US retail sales numbers were clobbered (where have I heard that before?) by the weather early in the year before fiercely rebounding in March. April then disappointed with a mere 0.1% gain, although one might argue everyone who bought something did so in March having had to wait two months. Economists forecast 0.7% growth in May, hence the 0.3% result again disappointed. But all is not what it seems.
April’s number was revised up last night to 0.5% from 0.1%. On a re-base, the May result is thus better than expected. So if we net out the weak Jan-Feb and the big March rebound, and then add in April-May, we get a 2014 trend of around 0.5% growth.Pretty solid.
The issue now however, at least in the near term, will be US gasoline prices during the summer driving season. On Wednesday night oil markets were torn between the World Bank global growth downgrade and increased US inventories on the one hand, and Iraq on the other. Last night it was all about Iraq. Brent crude jumped US$2.96 to US$113.02/bbl and West Texas jumped US$2.37 to US$106.86/bbl. Even US natural gas jumped 5%.
The ISIS invasion has happened so quickly heads are spinning across the globe. (Always the out-of-left-field factor that sparks a correction…not that this is one…yet). In recent years global markets have come to see geopolitical uprisings more as temporary distractions than reasons to panic, with Ukraine the latest example. In terms of energy concerns, all of Ukraine, Nigeria and Libya have offered up threats of late, yet until last night oil prices have been stuck in range for some time. Will this just prove another distraction?
Gold traders are hedging their bets. Gold jumped US$12.40 to US$1273.10/oz last night. The US ten-year bond yield fell 5 basis points to 2.59% although it must be said the bulk of that fall came only after a midday (NY) auction of thirty-year Treasuries was met with greater than expected demand. The US dollar index actually fell by 0.2% to 80.59, but that’s because the Bank of England guvna suggested last night the first UK rate rise may come sooner than previously expected.
Base metal prices were all lower last night, but traders were not particularly looking to Iraq. Interest is rapidly drying up ahead of the northern summer shut-down and prices are currently drifting off on low volumes. All metals were down 1-2%.
Spot iron ore fell US$2.00 to US$91.50/t. Oh dear.
The SPI Overnight fell 30 points or 0.6%.
So it looks like we’re in for some selling today, and with only a couple of weeks to go to EOFY we are also in the tax-selling period, and we may yet see more profit “confessions” from corporates, and iron ore miners are about to cop another beating. No claret run today, one feels.
We do have a monthly data dump from China today – industrial production, retail sales and fixed asset investment – which might impact on things, and the Bank of Japan holds a policy meeting.
And then there’s triskaidekaphobia.
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