Daily Market Reports | Jul 01 2014
By Greg Peel
The Dow closed down 25 points or 0.2% while the S&P was flat at 1960 as the Nasdaq gained 0.1%.
Happy New Year.
The New Year’s Eve party was a bit of a flop yesterday but as I’ve been saying since last week, little can be gleaned in true market sentiment terms when everyone is playing games for year-end. Yesterday the window dressers were overwhelmed by the profit-takers and tax sellers, with selling indiscriminate across all sectors. The winner was 5400, leaving 5500 to smile weakly in the background.
It all means nothing, and there’s no reason why today can’t see a full reversal. We’ll see.
The banks weren’t left out yesterday despite the rather positive private sector credit data release. Total credit grew at 4.7% year on year to May, with housing contributing 6.2%. The long-awaited recovery of business credit seems underway with 2.7% growth, leaving only the consumer as a wary laggard on 0.3%. Credit growth is at its highest level since March 2009 – the month the world turned around on the introduction of a little thing called QE.
The monthly numbers suggest little impact from the budget blues.
Nor have they had much impact on inflation, with the TD Securities gauge showing no change in headline inflation in June to leave the annual rate at 3.0%, while the RBA core measure rose 0.2% to 3.0%. That’s the top of the range, and while the RBA will today no doubt reiterate its expectation that inflation will behave itself in the near term, there is no room for a rate cut.
New home sales nevertheless fell 4.3% in May, marking the first monthly fall in 2014. Sales are still up 21% year on year, and given the run-up in prices it only makes sense the market should find a tolerance level eventually.
Wall Street was always going to be susceptible to its own round of quarter-end push and pull last night, and it appears the sign-off trade was to sell the big caps and buy tech. But not in any startling way. The S&P 500 posted a 6% gain for the June quarter, which is the best result since 2009. The S&P has now marked six consecutive quarters of growth.
That’s a lot, historically, and underscores the ever present fear in the market of a long overdue correction. Indeed it’s been two decades since a run of six has been booked, but in 1995-96 — in the run out of recession and into the tech boom — the S&P posted fourteen consecutive quarters of growth. So not everyone on Wall Street is worried.
US pending home sales rose 6.1% in May. Pending sales are down 5.2% year on year, but have seen three months of gains to the highest level in eight months. The trend appears positive.
The Chicago PMI slipped to 62.6 in June from May’s seven-month high of 65.5, but anything in the sixties implies strong expansion.
The US dollar index fell 0.3% to 79.80 last night, but its current lack of volatility is highlighted by a 0.4% fall for the whole June quarter. The dollar is in a race to the bottom with the yen and euro even as the Fed tapers QE purchases, and weak against the pound given expectations of a UK rate rise. The dollar is also a solid base for carry trading into high yield currencies such as the Aussie, which was flat overnight at US$0.9433.
The failure of the greenback to appreciate has left many scratching their heads, but forecasters have more substantially been blown away by the US ten-year bond yield. When the Fed announced in December it would begin to taper, US yields initially bounced and forecasters assumed they would be higher six months hence. But here we are, and the ten-year yield has fallen 52 basis points for the first half, to 2.51% last night. That’s the biggest first half bond rally since 2010 when QE was hitting its straps.
Forecasters are not fazed nonetheless, and suggest the next six months will finally see bond prices fall. Or maybe the six months after that. The risk is the first true jump in yields will spark the long-awaited stock market correction, but then that’s what everyone thinks. And when everyone thinks the same thing…
There was a late rush into gold last night to end the quarter, as the physical metal jumped US12.40 to US$1327.50/oz for no other apparent reason bar a slightly weaker greenback.
Commodities funds decided last night the picture is becoming more positive for metals demand, and the quarter closed on a strong note on the LME ahead of today’s all-important Chinese PMI releases. The weaker greenback also kicked in, sending copper, tin and zinc all up over 1% with nickel not far off. Copper settled above the psychological US$7000/t mark for the first time since early March.
Iron ore ended the year on a downer, falling US$1.10 to US$93.80/t.
The crude that matters – Brent – finished the quarter up 4.3% but the geopolitical premium built into that gain has been quietly waning, and last night Brent fell US79c to US$112.50/bbl. West Texas – the crude that doesn’t matter until the Keystone pipeline is built – rose 3.7% for the quarter and last night fell US26c to US$105.48/bbl.
The SPI Overnight closed up 9 points.
The new year starts with a bang today as all eyes turn to the manufacturing PMI releases due out of China, from both Beijing and HSBC. Australia, Japan, the eurozone, UK and US will all deliver Manufacturing PMIs over the next 24 hours.
The RBA will meet today and leave rates on hold, although currency commentary will be in focus.
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