Daily Market Reports | Sep 12 2014
By Greg Peel
The Dow closed down 19 points or 0.1% while the S&P closed up 0.1% to 1997 and the Nasdaq rose 0.1%.
The only thing shocking about yesterday’s shock Australian jobs numbers was that anyone was shocked. The 6.1% unemployment rate was unsurprising, given no-one believed 6.4% in July. Indeed, if this were the only supposed surprise we could happily call the July numbers a blip. But there is possibly an issue with the fact the 121,000 jobs added is by far the greatest monthly job addition since the Hydro Electric Scheme started hiring. By a country mile. Economists had pencilled in 15,000. I think there’s really only one conclusion we can draw.
If you want to know how many people are out of work in Australia, don’t bother asking the ABS.
We’ll await the revision. It’s all academic at present anyway, given we appear to be entering into an adjustment phase in Australian financial markets representing anticipation of the first Fed rate rise. The Aussie is down another 0.5% to US$0.9103 today, to mark a 3% fall for the week. From April until this week, the Aussie had been suspended in a 92-94 band.
This is not about commodity prices. The iron ore price started falling months ago and the Aussie held firm. This is about interest rate differentials and the search for yield. Why else would commodity price-related falls in the materials and energy stocks have been accompanied by downward drifts for the banks and telco to boot? And general selling across the big cap names? The usual response to falling commodity prices and thus falling share prices for BHP et al is to switch into the banks and defensives.
The result season was positive in a nominal sense, indicating the first significant earnings growth since the GFC, but only fair in a relative sense, when compared to PE multiples. Valuations are now consolidating. If the Aussie continues to fall it will act as a dampener for the stock market. If the Fed raises rates in the US it will be taking the first step towards “normalising”. This will then help Australia “normalise” as well. The Aussie will fall to where it should be. Commodity prices will be benign rather than super-cycle driven (as China settles into maturity). The Australian economy will balance out between mining and non-mining. Banks will become boring again.
It just won’t happen quickly or smoothly.
Speaking of boring, Wall Street wobbled its way to a tepid close last night. It was a familiar script, with the Dow being down 84 points as Europe closed before grafting back for the rest of the session. It’s been a week largely devoid of significant US data releases, rather the focus has been on Scotland – where the vote now seems to be swinging the other way – and on GWIII, and no one sells on war anymore. No new news on Ukraine-Russia.
The US data flow nevertheless ramps up again tonight, with retail sales and consumer sentiment, before next week brings a flurry of releases. But it’s all about the Fed statement release on Wednesday night, and that’s all about semantics. Will the words “considerable time” be dropped? Let’s discuss that for another six days.
Meanwhile, markets are shifting into position. The US dollar is stronger, up another 0.1% to 84.28 last night. The US ten-year yield is stronger, although steady last night at 2.53%. Gold is weaker, falling another US$8.80 last night to 1240.20/oz. The stock market is poised around S&P 2000, for the simple reason no one’s quite sure if a change in Fed policy is ultimately a “buy” or a “sell”.
The LME has much to contend with. Yesterday’s Chinese inflation release, marking a 2.0% annual CPI in August from 2.2% in July, suggests the Chinese economy is stagnating. But also suggests room for stimulus. A stronger greenback acts as a natural price suppresser. This week’s sell-off triggered negative technical signals and we’re still not sure what the hell is going on with Russia and subsequent sanctions.
Base metal prices started to tumble again last night but late buying tempered the losses. We still saw copper down 0.5%, aluminium and zinc down more than 1% and nickel down 2%.
Iron ore fell another US30c to US$81.90/t. Who wants to call the bottom?
Having fallen steadily through the week, and to under the psychological 100 mark in the case of Brent, the oils saw some bargain hunting last night. Brent was up US17c to US$98.24/bbl but West Texas jumped US$1.42 to US$93.12/bbl.
The SPI Overnight is up 5 points, but hasn’t picked a winner all week.
It’s a soggy day in Sydney today and we may well see a soggy and uncommitted market. Lunch? Thanks, I think I will.
Beijing will get the kids off to sport tomorrow morning, do the shopping, and then release August industrial production, retail sales and fixed asset investment data, which should provide a talking point for Monday.
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