Daily Market Reports | Dec 04 2014
By Greg Peel
The Dow closed up 33 points or 0.2% while the S&P gained 0.4% to 2074 and the Nasdaq added 0.2%.
While economist consensus rarely lands right on the money for a data release as complex as the GDP, with its many moving parts, rarely do economists “miss” by such a wide margin. Expectations were for 0.7% growth for Australia’s GDP in the September quarter from the June quarter to mark 3.1% annualised growth, which is “on trend”. Instead we saw paltry 0.3% growth to leave us growing at a below trend level of 2.7%. The RBA’s implicit 0.5% estimate was also off the mark.
While Australia’s terms of trade (export value minus import value) have fallen on the back of lower commodity prices and, during the quarter in question, a still-high Aussie, economists knew that. This was not where the “miss” lay. The real surprise was a larger than expected fall in business investment, CBA’s economists declare, which detracted 0.4 percentage points from the GDP. This fall belied the indicators provided by the construction work done and capex numbers released earlier in the week.
Elsewhere, household consumption was moderate (up 0.1ppt) and dwelling investment, government spending and inventories were all negative (down 0.1ppt). Despite lower prices, net exports still provided the driving force (up 0.8ppt).
The conclusion is that there is now even more pressure on Australia’s non-mining economy to contribute to the game, given commodity prices have plunged lower since September. But the CBA economists are not too concerned. They point more recent data suggesting an entrenched upturn in residential construction (which is more than soaking up jobs lost in mining construction), rising momentum in consumer spending and better than expected plans for non-mining capex spend as indicating improvement ahead.
Will the RBA now cut its rate on the back of the weaker than expected GDP? Currency traders are certainly leaning that way, given the Aussie is down 0.5% to US$0.8406 on the back of the GDP result. But this becomes self-fulfilling of course, given a lower Aussie is a proxy for a rate cut. The RBA will not meet again until February, so there’s a fair bit of data to absorb in the interim, including Christmas spending. There are also macro-prudential control measures to be introduced shortly, one presumes.
As to why the ASX200 was up 50 points yesterday ahead of the GDP number, and despite across the board overnight falls in commodity prices, it is a mystery to me. Because the Dow was up 100? I’d love to know the connection between the US and Australian economies as we head into 2015. The GDP result took the wind out of the sails for a while until buying was restored on the assumption the RBA must now cut its rate, so we still finished on a very positive note, featuring gains in all sectors.
A day ago consensus was for the first change in the RBA rate in 2015 to be a hike.
Australia’s service sector PMI managed to improve in November, but the increase to 43.8 from 43.6 implies only a slight slowing in an otherwise rapid clip of what is now basically a six-year contraction. If one considers just how small Australia’s manufacturing sector is now, one might appreciate just how important the service sector is to Australia’s non-mining economy.
According to Beijing, China’s service sector PMI ticked up to 53.9 from 53.8 in November, while according to HSBC, it ticked up to 53.0 from 52.9.
Japan celebrated a return to expansion at 50.6, up from 48.7, while the eurozone slowed to 51.1 from 52.1. The UK enjoyed a cracking 58.6, up from 56.2, while the US topped that with a rise to 59.6 from 57.1.
US private sector jobs growth slowed to 208,000 in November, down from 233,000 in October and missing forecasts of 223,000. But Wall Street is happy with anything over 200k. The non-farm payrolls number is out tomorrow night.
The Fed’s Beige Book suggested the usual “modest to moderate” growth in eleven of the twelve Fed districts, but it did highlight improvements in consumer spending and hiring and a general optimism overall.
Wall Street was not particularly inspired early in the session last night nonetheless, and only managed a half-hearted rally towards the close. Yet the Dow did hit a new high again and this time the S&P500 also joined in. One impetus last night was a slight bounce in the oil price.
West Texas gained US21c to US$67.31/bbl, which in the context is hardly something to write home about, but at least it was not another plunge. Brent fell US75c to US$69.87/bbl.
It was a mixed bag on the LME last night, with a 1.5% rise in nickel offsetting a 1.2% fall in copper, with other metals doing not much.
Spot iron ore fell US20c to US$69.50/t.
Gold looks set to hang around the 1200 mark now until the next move is clear. Last night it gained US$9.30 to US$1210.10/oz despite the US dollar index rising 0.3% to 88.93.
The SPI Overnight closed up 12 points or 0.2%.
The GDP is now behind us, although look out for the next Westpac consumer confidence number. October also seems fairly distant now, but today we see October retail sales numbers and the trade balance. Can we kick off the December quarter with a bit of improvement?
And what might Mario Draghi do tonight when the ECB holds a policy meeting? It must be remembered that the likes of Europe, Japan, China and India will be looking at plunging energy prices with uncontained excitement.
Rudi will make his final appearance for 2014 on Sky Business' Lunch Money today, between noon-12.45pm.
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