Daily Market Reports | Sep 10 2014
By Greg Peel
The Dow closed down 97 points or 0.6% to be just above 17k, while the S&P lost 0.7% to 1988 and the Nasdaq dropped 0.8%.
The buyers fought back on Bridge Street yesterday following a couple of sessions of big cap selling. An unchanged iron ore price was treated like a rebound as the materials sector bounced back a percent, with healthcare, banks and consumer discretionary all posting decent recoveries.
The day’s data releases caused no concern. NAB’s business confidence survey showed a drift back from a big jump in July, surprising no one, and confidence remains in positive territory. Housing lending rose 2.7% in July, featuring no owner-occupier growth but a 6.8% surge in investment loans to a record 49.7% of total loans in the month.
Don’t mention the B-word.
But forget stocks, the big move at present is in the Aussie dollar. On Monday night the San Francisco Fed published research warning current low volatility suggests markets are underestimating just how quickly US interest rates could rise. Fed chair Janet Yellen came from the San Fran Fed. On this news, the Aussie spent the night drifting off.
Last night a rumour suddenly spread around Wall Street that a critical phrase will be dropped from next week’s Fed policy statement, that being the longstanding suggestion of rates remaining low for “a considerable time”. We recall that in her debut press conference earlier this year, Yellen put her foot in it when she defined a considerable time as being “six months, something like that”. She subsequently back-pedalled fast, given stock market panic, but most assumed the cat was now out of the bag. (Yes, sorry, I’m going for the mixed metaphor award here. Should play League.)
Thus it has been assumed for most of 2014 that if tapering ends towards the end of the year, the first rate rise will be sometime around mid-2015. More recently however, strengthening US data have suggested maybe first quarter 2015 instead of second. So what it really comes down to is data, and not a date. This is why, it is rumoured, the Fed will drop its time-related guidance in next week’s statement and opt for data-driven policy guidance instead. Which implies, potentially, that we’re already inside the six-month timeframe.
And implies that from next week on, assuming the “rumour” is accurate, we’ll be back to the old bad news is good news and vice versa play. It will all depend on the data.
Hallelujah if the Aussie didn’t drop another 0.8% in one plunge last night on this news. At US$0.9204, the Aussie has lost around two cents in two sessions. And while we must consider the implications of a stronger US dollar impacting on dollar-denominated commodity prices, a lower Aussie is just what Australia’s non-mining economy needs if it is ever going to rebalance our GDP.
Last night the US dollar index actually came off 0.2% to 84.15, but only because major trading partner currencies – the euro, yen and pound – stabilised. It is up 5% since July. The US ten-year yield rose another 3 basis points and is now back at 2.50%.
I’d be very surprised if the San Fran Fed and whoever is feeding economists suggestions of the aforementioned change in Fed guidance aren’t part of a Fed plan to start shaking up markets now in order to prevent panic next week. It worked in the stock market last night, with the Dow rocking and rolling its way to a decent fall, held up only by the psychological 17,000 support line. The Nasdaq copped the brunt, but only because the market can’t make its mind up about Apple.
Last night Apple announced a new iPhone 6 in two larger screen sizes (will this canabalise both small screen phone and iPad sales?), a 2015 launch of the iWatch (do your kids wear watches?), and a point of sale phone payment system in partnership with Visa et al which eliminates cards. The latter is one most are excited about. It’s not new, but Apple rules the waves.
And remember way back when we were all speculating whether Greece might exit the eurozone, and potentially start a stampede? Seems like a distant dream. But it does make it ironic that Scotland is now looking very much in danger of exiting the United Kingdom. The UK has been the world’s star economic performer ever since the London Olympics while the eurozone remains an economic basket case.
The Scots will vote this weekend, crying “They may take our lives but they will never take our freedom!” Meanwhile the UK government, in a pique of sudden desperation, is encouraging all English to fly the St Andrews cross as a sign of solidarity with their northern brethren, lest they fail to realise just how dear to the hearts of the English the Scots have always been.
Don’t mention Mel Gibson.
I noted earlier that a resurgent greenback will impact mathematically on commodity prices. That was very much in evidence last night as carnage swept the LME. Dollar-related initial weakness sparked technical triggers that turned the trickle into a flood, and left aluminium down 1.5%, copper and tin down 2%, lead and zinc down 3% and high-flying nickel down 5%.
The weakness flowed over to the ICE, with Brent falling US$1.13 to US$99.16/bbl to be sub-100 for the first time in over a year. West Texas fell US40c to US$92.785/bbl.
The euphoria of one session without a fall in the iron ore price will give way today given a further US40c fall to US$83.20/t.
The only “commodity” not playing the game is gold, but then who knows what goes on with gold? It’s steady at US$1256.00/oz.
The SPI Overnight fell 17 points or 0.3%.
The next Fed policy statement is not due for another week, so we will have to suffer through a week of intense speculation. Next week’s meeting is a quarterly, hence not only will revised Fed forecasts be released but Janet Yellen will give a press conference.
Locally, the Westpac consumer confidence survey is due today. There are also quite a few stocks going ex, which will only serve to exacerbate what looks like being a weak session.
Rudi will appear on Sky Business tonight at 5.30pm.
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