Daily Market Reports | Jun 17 2014
By Greg Peel
The Dow closed up 5 points while the S&P rose 0.1% to 1937 and the Nasdaq gained 0.1%.
The Australian market again saw initial selling followed by a claw-back yesterday as the bargain hunters and those on the quest for yield provided support. The 25 drop from the open in the ASX 200 reflected not only concern with regard Iraq but at this stage likely some tax-loss selling as well. The index nevertheless closed flat.
It was similarly choppy on Wall Street last night as traders there also kept one eye on reports from Iraq while assessing the session’s data releases.
Industrial production bounced back in the US in May by 0.6% after a disappointing April fall of 0.3%. March achieved 0.8% growth out of the winter shutdown so it appears the US economy has wobbled its way through the second quarter after the difficult first quarter.
Economists had expected a fall in activity in the New York Fed region this month but the Empire State manufacturing index surprised with a gain to 19.3 from 19.0 in May, representing a new four-year high, when forecasts were for a fall to 16.7.
Housing market sentiment has also improved in June to its highest level in five months with the index rising to 49 from 45 – just under neutral confidence. Builders suggest consumers are hesitant and waiting for more robust evidence of a US economic recovery before committing to home purchases. Given the importance of the housing market to GDP, this is a bit of a chicken and egg situation.
The US stock markets chopped around during the session on the balance of US data, anticipation of Wednesday’s Fed statement and the pictures from Iraq allegedly showing mass executions of Iraq soldiers. The latest reports suggest ISIS militants have finally met with sufficient resistance one hundred or so kilometres from Baghdad to halt their head-spinning advance. Meanwhile, the Obama Administration has not ruled out the possibility of joining with longstanding enemy Iran in attempting to counter the terrorist group.
Notwithstanding sectarian alliances, the Iranians and US have a common goal in not seeing the substantial oil producing region of southern Iraq fall to ISIS. The US may be moving towards net energy self-sufficiency with the shale gas revolution but Americans still believe unrestricted consumption of crude is their God-given right and thus the country has not attempted to move swiftly to capitalise on the natural gas resources now being exploited. Thus once again the US economy is beholden to a Middle East oil shock.
Analysts suggest a possible US$20-30/bbl spike in the price of oil were southern Iraqi production to go off-line, which would put a very big dent in the US economic recovery. While Iran might benefit from higher oil prices, the flipside would be lower demand and a greater urgency among economies around the globe to wean themselves off reliance on crude in the longer term.
Last night oil prices were relatively steady with Brent falling US19c to US$113.22/bbl and West Texas falling US9c to US$106.73/bbl.
Gold was also steady on a slight dip to US$1271.70/oz and the US ten-year bond yield is unchanged at 2.60%. Expectations that the UK will be the first major economy to see an interest rate rise has sent the pound to near five-year highs and last night the US dollar index fell 0.2% to 80.45. The Aussie is steady at US$0.9402.
After having spent some time consolidating of late, the nickel price suddenly took off again last night with a 3% gain. The other metals posted small positive moves as LME traders also look to this week’s Fed meeting.
It’s going to be a tough day for iron ore producers. Yesterday saw some strength in the Australian materials sector with the big diversifieds finding buying support but after last night the iron ore price now has an 8 in front of it, and that only fuels the anxiety. Iron ore fell US$1.90 to US$89.00/t and 2012’s low of US$86.70/t is now clearly in view.
2012’s iron ore episode saw a bounce from the low just as swift as the fall had been, but this time analysts suggest the fall in the iron ore price is more fundamentally based.
The SPI Overnight fell 6 points.
CPI and housing starts data will provide Wall Street with more to ponder tonight as the FOMC members gather. Tomorrow night the Fed statement is due and Janet Yellen will hold a press conference.
The minutes of the June RBA meeting are due today, which may offer up some insight into the board’s assessment of the federal budget.
David Jones ((DJS)) shareholders gather today to vote on the South African takeover proposal.
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