Daily Market Reports | Dec 10 2014
By Greg Peel
The Dow closed down 51 points or 0.3% while the S&P lost 0.2% to 2055 and the Nasdaq managed a rally of 0.4%.
Well, one really does now have to wonder just what Bridge Street was up to on Monday. Or indeed exactly why the ASX200 spent all last week rallying from its oil price-induced lows. What will strong employment growth in the US do for us? Speed up the Fed rate rise and thus close the carry trade gap, making Australian stocks less attractive to foreign investors. Were the FSI recommendations far less onerous than feared? No, it’s just that we now know what they are.
Resource sectors aside, the buyers barrelled in once more to the Australian market and seemingly ignored weak Chinese trade data and a weaker than first thought Japanese GDP. Global economic weakness was nevertheless not lost on a more focused Wall Street, which subsequently sold the Dow off 100 points on Monday night. Global economic weakness was not lost on oil markets, which sold off again heavily to new lows, or the iron ore market, which sold down through the US$70/t level once more. And so, surprise-surprise, Bridge Street bottled yesterday.
The resource sectors, which didn’t even move on Monday, led the charge. Energy fell 4.8% and materials fell 3.1%. Every other sector was dragged down in the turbulence, as once again Australia did not seem like the best place to be. The Aussie dropped another half cent during the session to under 82.50.
And in another case of surprise-surprise, NAB’s November business confidence survey – the first to include the really big plunge in oil prices, as I noted yesterday morning – was a shocker. The conditions index fell to 5 from 13 and the confidence index fell to 1 from 5. It was enough for NAB’s economists to join the growing chorus of those now expecting the RBA to have to cut again next year. Falling commodity prices and a consumer confidence hangover from the federal budget disaster underscore the call.
Realistically Bridge Street played catch-up yesterday, as global economic weakness fears rolled around the globe. Japan fell 0.7%, Hong Kong fell 2.3% and Shanghai fell 5.4% (mind you, it’s been on a tear of late). The selling rolled into Europe, where London fell 2.1%, Germany fell 2.2% and France fell 2.6%.
That selling then carried back around to Wall Street, to send the Dow down 223 points before 11am. It was at that point someone said “Hang on, didn’t we start all this” and then the buyers stepped in. Fundamental to the decision to buy was a rebound in oil prices last night of one percent – not substantial, but a rebound nonetheless. West Texas crude rose US63c to US$63.76/bbl and Brent rose US47c to US$66.74/bbl.
Yet global concerns continue to reverberate. Having established a buffer with a cut to the PBoC’s cash rate last month, Beijing moved ahead with further reforms yesterday by banning the use of low-grade corporate debt as collateral to borrow cash. The Lord giveth, etc. That was the main reason the Shanghai index tanked.
And remember Greece? Well it’s deja vu all over again as the Greek prime minister made the shock announcement yesterday that if his choice of presidential candidate does not win approval in parliament, he will call a snap general election. On current polling it is an election he would most likely lose to the leftist Syriza party – a fierce opponent of Greece’s EU bail-out obligations. Suffice to say, the Greek stock market fell 13% last night, and the rest of the world was left shaking its head. Oh no, not again.
The US ten-year bond yield fell 4 basis points to 2.22% last night. One might have expected the US dollar to rise further on a safe haven basis, but traders have called the euro short-term oversold and the greenback short-term overbought. The dollar index fell 0.4% to 88.76, which gave gold the breathing space to jump US$27.30 to US$1232.60 on general global concern. The fall in the greenback also arrested yesterday’s fall in the Aussie, which is back where it was 24 hours ago at US$0.8296.
There was also much Fed discussion going on last night. Rumours have surfaced, again, that next week’s Fed policy statement will not include the words “considerable period” with respect to how long interest rates will remain low. This caused some angst last night, but it’s hardly new. Talk is that “considerable period” will be replaced with “a need to be patient”, which likely refers to what’s going on in the rest of the world, but then one wonders exactly what the difference is.
Base metal prices were again mixed last night, as LME traders continue to run hither and thither in a haze of not knowing quite what to do, it would seem. Copper bounced 1% last night amidst smaller rises for other metals but falls for nickel and lead.
Iron ore fell US30c to US$69.40/t.
Given yesterday’s 1.7% rout for the ASX200, it’s no shock a turnaround from the depths on Wall Street last night is enough to see the SPI Overnight up 7 points.
Well, Australian businesses have lost their confidence, so what does the Australian consumer think about it all as we head into Christmas? We’ll find out today when Westpac releases its survey results. Housing finance numbers are also due.
China will release its November inflation data today, which can be a two-edged sword. A low number underscores the slowing Chinese economy story, but also reinforces scope for further PBoC rate cuts.
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