Daily Market Reports | Nov 06 2014
By Greg Peel
The Dow closed up 100 points or 0.6% while the S&P gained 0.6% to 2023 but the Nasdaq eased 0.1%.
A flattish close on Bridge Street yesterday belies the fact the ASX200 was actually down 40 points at lunch time before bouncing back with a vengeance. A weak opening was not surprising given decent falls in oil, iron ore and base metal prices but a break of our old friend 5500 helped to bring in the buying support, and progressive indications of a Republican resurgence in the US midterm elections likely helped.
The energy sector remained hardest hit at the close, with a 1.8% drop, and materials limped to a 0.5% down-day, but Woolies found some buying interest following its de-rating and the banks were also sought after.
The local data point of the day was the October service sector PMI, which showed a fall to 43.6 from 45.4 in September, marking a 15-month low. The service sector employs more than three-quarters of Australians.
HSBC’s measure of China’s service sector PMI showed a fall to 52.9 from 53.5 to mark a three-month low.
Overnight the eurozone’s equivalent showed a slip to 52.3 from 52.4, but more concerning was a fall in September retail sales of 1.3% when 0.8% was expected. More fuel for the fire that is anticipated QE from the ECB, if only the central bank can get Germany on board. The ECB holds a policy meeting tonight and it will not be missed that the Bank of Japan upped its own stimulus last Friday.
The UK services PMI fell to 56.2 from 58.7 to mark a one-year low, although the numbers have pulled back to a more sedate level of expansion from gangbuster stuff earlier this year. The Bank of England also meets tonight.
Similarly, the US PMI fell to 57.1 from 58.6. Wall Street was unperturbed, and in economic terms preferred to take in the ADP private sector jobs report for October. The report suggested a better than expected 230,000 new jobs were added in the month, to mark the seventh straight month of additions in excess of 200k. Focus now turns to tomorrow night’s non-farm payrolls report.
But the real kicker for Wall Street was news the Republican Party had taken control of the Senate following the midterm elections. The Republicans now control both houses and are seen as the more business-friendly, capitalist party, which is more favourable for US financial markets. As to whether a full congressional majority will end the legislative deadlock that has dogged President Obama throughout his administration is yet to be seen. The president retains the power to veto legislation and the Republican Party itself is split into two camps – the Tea Party and normal people.
The US dollar was given another boost by the election result, rising 0.5% to 87.46 on its index. Gold copped a beating, falling US$23.40 to US$1145.10/oz. The US ten-year bond yield remained relatively steady at 2.35%.
The real “victim” last night, if you like, was the Aussie dollar. It fell a whopping 1.8% to US$0.8583 to its lowest level in four years. This poses an interesting issue for the Australian stock market. Blue sky on Wall Street and a resurgent US economy are positives, and a lower Aussie is positive for the Australian economy, but a lower Aussie also reduces the value of foreign investment in the local market and, as we saw in September, can trigger foreign selling.
The US energy sector was a stand-out driver of strength in the S&P500 last night. A combination of the Republican win, which implies a more pipeline and oil and gas export-friendly Congress, and a lower than expected rise in US weekly inventories, sparked a US$1.59 rebound for West Texas crude to US$78.81/bbl. Brent rose US48c to US$83.24/bbl.
Base metals were more subdued last night after Tuesday night’s falls. Lead and zinc continued to slip and copper fell 0.3%, but nickel recovered 0.6%.
The bad news is iron ore has fallen US$1.10 to US$76.00/t – a new five year low. The falling Aussie is the counterweight, which will hopefully offer good news.
The SPI Overnight rose 16 points or 0.3%.
Ready for a laugh? It’s jobs numbers day in Australia today. Then all eyes will swing to Brussels as the ECB holds its policy meeting.
Another handful of local companies will hold AGMs today.
Rudi will appear on Sky Business at noon.
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