Daily Market Reports | Jun 26 2014
By Greg Peel
The Dow rose 49 points or 0.3% while the S&P gained 0.5% to 1959 and the Nasdaq added 0.7%.
The Australian market continued to play games yesterday with a “weak lead from Wall Street” and a US10c drop in the iron ore price no excuse for the 54 point plunge in the ASX 200 from the open. End of year pressure finally triggered the bargain hunters for a more moderate loss on the day but with three sessions to go before books close, and stock option expiry day today along with a long list of stocks going ex-div, anything can still happen.
The political world is also upside down downunder which can’t be doing the market any favours. You know it must be a parallel universe when the Greens reject a fuel excise increase and a coal miner blocks the carbon tax repeal in favour of an emissions trading scheme. Next the Motor Enthusiasts will be pushing for more bike lanes.
I suggested yesterday that as the March quarter ended so long ago it would need the final revision of the US GDP result to be manifestly different from a negative 1.7% consensus forecast for anyone to care. Well it was, but they didn’t. The US economy shrank by 2.9% in the snow-bound quarter apparently, which is the biggest contraction ever recorded outside an actual recession (which technically requires two consecutive negative quarters) since WWII. Yet despite the shock, Wall Street rallied.
Economists are predicting about an equivalent amount to the positive for the June quarter as the US economy fights back, but we can also see why the Fed, which would have had some hint of the result last week, continues to confuse with its excessive dovishness. The March quarter result only serves to reinforce the notion the central bank will keep interest rates lower for longer, and longer, which for stocks is positive in this (as noted) upside down world.
If the June quarter is to see a 3% jump in the US GDP then it won’t be getting any help from May new durable goods orders, which fell 1.0% when economists had expected a fall of 0.5%. In reality, the Pentagon stopped ordering new submarines in May so if you take out that impact the core number rose 0.6%, and that’s okay.
The US bond market responded to the weak GDP news as one might expect, with the ten-year yield falling 2 basis points to 2.56%.
The oil market became a focus of attention last night, and not because of Iraq.
US law states that while refined oil products can be exported at will to foreign customers, crude oil cannot. Last night it was argued in the Supreme Court that ultralight shale oil, which is being recovered in volume from America’s vast shale fields, is so light it’s effectively more refined than traditional oil condensate. The court agreed, and now ultralight shale oil can be exported as is.
Everyone is now confused over where the law starts and ends, and West Texas crude closed up US$1.01 to US$106.80/bbl for the session. It would have closed higher if the weekly inventories data had not shown an increase. Brent, meanwhile, was little changed at US$114.25/bbl.
Base metal prices were mixed last night despite the history lesson of the GDP, although copper continued to tick up and nickel decided to go up 2%. Iron ore rose US40c to US$93.70/oz.
The US dollar should by rights be lower on the expectation of a lower for longer Fed rate but given it’s a race to the bottom among the world’s central banks, the dollar index fell only 0.1% to 80.21. The impact was nevertheless felt in the Aussie which, having fallen sharply in the previous 24 hours, has bounced straight back 0.4% to US$0.9404. Gold is steady at US$1318.40/oz.
The SPI Overnight rose 7 points, but quite frankly trying to pick what the ASX 200 might do today is a mug’s game.
Don’t forget the stock options expiry and all those ex-divs.
Rudi will appear on Sky Business today at noon.
Bring on FY15.
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