The Overnight Report: Slow As She Goes

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By Greg Peel

The Dow closed up 33 points or 0.2% while the S&P fell 0.2% to 2048 as the Nasdaq fell 0.6%.

It was a game of two halves on Bridge Street yesterday. An initial drop from the opening bell for the ASX200 was led by the materials sector once more, with the focus on iron ore, while the supermarket rout also continues. Apparently no one’s doing their regular “big shop” at Colesworth anymore, preferring to pick up boxes of bargains from the Germans or the Yanks.

The index then traded flat for most of the session until 3pm, when a new wave of selling hit. Materials closed the day the biggest loser down 2.4%, closely followed by consumer staples on 2.1%. But whereas we’ve seen some distinct counterbalancing into defensives from local investors this week, yesterday we saw healthcare, utilities and the telco all down as well. Sell Australia.

The materials sector found no support in the release of HSBC’s flash estimate of China’s November manufacturing PMI, which fell to 50.0 from October’s final 50.4. China’s manufacturing sector has stalled.

Japan’s equivalent measure fell to 52.1 from 52.4, but Mr Abe would be happy with anything in the positive (50 plus) at this stage. Meanwhile, Europe’s woes continue. The eurozone composite PMI (manufacturing plus services) fell to 51.4 from October’s 52.1, to mark a sixteen-month low. Economists had expected a rise to 52.3. Germany was the biggest contributor to the slide, with its individual PMI falling to a sixteen-month low 52.1. Germany’s manufacturing component followed China to a 50.0 stall.

Nor was there much joy in the US, where the manufacturing PMI is estimated to have fallen to 54.7 from 55.9 to mark a third consecutive decline when economists had expected a rise to 56.2.

The US also posted flat month on month inflation growth in October, with the CPI remaining steady at a 1.7% annual rate. The lack of inflation is clearly attributable to lower energy prices, which not only impact the component of petrol at the pump, for example, but filters through to other components such as airline fares for a double whammy effect.

While Australia’s energy stocks may have been carted of late on the falling oil price, note that the US domestic price of natural gas has jumped 25% in November. There is a seasonal effect of course, and we’ve just seen pictures of the US north east under several feet of snow, and this is a US domestic price and not a benchmark (yet) for global LNG pricing, but the price surge is worth noting nonetheless.

US existing home sales rose to their highest rate in over a year in October, increasing by 1.5%. And the Philadelphia Fed manufacturing index, which seems to have become very volatile of late (along with the neighbouring Empire State index), jumped to a twenty-year high 40.8 from 20.7 in October when economists had forecast a fall to 18.5. It was not a good day for economists around the world yesterday. And let us not forget, the Philly Fed is a zero neutral index.

Coming back to oil, one would normally expect across the globe easing in the pace of manufacturing to be a negative for energy, but oil prices have fallen a long way. Someone decided to square up last night ahead of the OPEC meeting, and the market duly followed. West Texas is up US$1.03 to US$75.60/bbl, Brent is up US$1.07 to US$79.31/bbl, and the OPEC meeting is not until Thursday.

Staring down the abyss, iron ore was unchanged at US$70.00/t.

Nor did base metals much respond to weaker global PMIs, and they remain basically range-bound at this juncture. Copper slipped a bit, aluminium rose a bit, while nickel and tin made reasonable gains.

The US dollar index also slipped a bit last night, down 0.2% to 87.60, thus despite the flat US CPI result gold rose US$13.30 to US$1195.30/oz. The Sell Australia trade has helped the Aussie down a further 0.2% to US$0.8595.

After the rout in the physical yesterday, the SPI Overnight closed up 12 points or 0.2%.

There are no global economic data releases of any note over the next 24 hours, which is unusual. There are quite a few AGMs on the local calendar again today nonetheless, including Lend Lease ((LLC)) and Myer ((MYR)).
 

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