Daily Market Reports | Jun 24 2014
By Greg Peel
The Dow closed down 9 points while the S&P was flat at 1962 and the Nasdaq was also flat.
The ongoing rebound in the iron ore price helped the ASX 200 to a solid start yesterday, and another kick was provided when HSBC released a flash estimate of its Chinese June manufacturing PMI. Sellers arrived in the afternoon but it still proved a solid session.
HSBC’s PMI showed a jump to 50.8 from 49.4 in May, which not only well exceeded forecasts, it represents the first month of expansion for Chinese manufacturing in 2014 according to HSBC’s small business-oriented survey. A solid boost was also seen in the sub-segment of new orders, which bodes well going forward.
Economists suggest the turnaround is reflective of the mini-stimulus program Beijing has been pursuing in the first half of 2014, aimed at arresting a slide in annual GDP growth which saw a fall to 7.4% for the March quarter from 7.7% in December. Markets were sceptical when the Chinese premier recently reiterated a target of 7.5% growth for 2014, with most forecasts below that figure.
Whatever the case, the result is good for Australia’s miners – the materials sector led the charge up 1.4% yesterday on the iron ore price and the PMI – and it’s “good” for the Aussie dollar which, unfortunately, is up 0.3% to US$0.9419. That’s the trade-off.
Wall Street liked the Chinese PMI as well, and also liked the domestic data releases of the day. But the problem for Wall Street is that valuations are looking pretty full at new all-time highs, which makes it difficult to buy. There’s not much point in selling, as that would be to “fight the Fed”. So what to do? Well, it’s summer.
America correctly marks its change of seasons on the solar calendar and not by when the Marine Corps in the colony of New South Wales is permitted to change uniforms, as is the case in other strange lands. Thus last night’s session was the first of the summer and already there is talk of fund managers having packed off and headed to the Hamptons. With valuations stretched and volatility at an historical low, it could be a long and languid three months.
Markit’s flash estimate of the US June manufacturing PMI came in at 57.5, up from 56.4, to mark its highest level since May 2010. Sales of existing homes rose by 4.6% to an annual rate of 4.89m when economists had expected 4.75m. The median sales price is up 5% year on year but the pace of sales is down 5%, although the hope is the stall in US housing brought about when Fed tapering was first announced is now over.
There are several more US housing-related data releases due this week.
The news is not quite as positive out of Europe, where the flash estimate of eurozone composite PMI (manufacturing plus services) fell to 52.8 from 53.5. Germany’s activity slowed slightly, but the real contributor to the downturn was France. Economists are now beginning to assume the June quarter will show contraction in the eurozone GDP.
But the ECB’s on to it, and Mario Draghi has promised to do whatever it takes.
There was subsequently not a lot of reaction in currency markets, with the US dollar index steady at 80.27. The US ten-year yield also remains steady at 2.62%, while last night gold eked out a US$3.40 gain to US$1318.10/oz.
The Chinese PMI would normally be positive for oil prices, but Iraq is dominating oil market sentiment. ISIL now controls all the border crossings from Syria and Jordan in the west of the country, but is meeting resistance in its push towards Baghdad. US secretary of state John Kerry is in Baghdad discussing a response with government officials and religious leaders, which might include replacing a prime minister who is seen more as part of the problem than part of the solution. The oil markets are playing it safe, and last night saw Brent crude fall US62c to US$114.03/bbl and West Texas fall US83c to US$107.00/bbl on the new August delivery front month.
The Chinese PMI is also positive for metals, although the metals are playing individual games at present. Copper’s quiet recovery continued last night with a 0.8% gain while zinc is also improving incrementally, while last night lead decided to go for a run and jumped 2%. The others were steady.
The iron ore rebound continues, as does the 2012 déjà vu, with another US$1.30 gain to US$93.40/t.
The SPI Overnight closed up one point.
More house price and sales data are due out in the US tonight along with consumer confidence, but what will it take to drag traders off the beach?
Today marks the official end of trading for what we currently know as Westfield Group ((WDC)) as well as the end of the road for Westfield Retail Trust ((WRT)). Deferred settlement trading begins tomorrow for “new Westfield” and the Scentre Group.
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