Daily Market Reports | Mar 12 2015
By Greg Peel
The Dow closed down 25 points or 0.2% while the S&P lost 0.2% to 2040 and the Nasdaq dropped 0.2%.
Volatility
BHP went ex yesterday, which explains the bulk of yesterday’s 2.6% fall for the materials sector and indeed the 0.5% fall for the ASX200. But irrespective of this adjustment, Bridge Street went on a rollercoaster ride yesterday, down 76 points from the open on Wall Street weakness, down only 20 points at lunchtime as the bargain hunters moved swiftly, and down 31 points on the close.
The bargain hunters sought yield, as is evident from a 0.7% gain for utilities and a 0.3% gain for the telco. The consumer sectors were nevertheless down again in the wake of Westpac’s consumer confidence survey, which confirmed the gloom evident in Tuesday’s NAB business confidence survey.
Despite lower petrol prices and an RBA rate cut, consumer confidence has fallen 1.2% this month to be unchanged over a year. Fears of growing unemployment and uncertainty over the federal budget were the major contributing factors.
Housing finance dipped in January, supporting analyst views that some heat might finally be coming out of a previously red hot market. The value of all loans fell 1.0% in the month to be up 7.1% year on year, and the value of investor loans – the driving force – fell 0.1% but are 22.1% higher. These are January numbers, pre-rate cut, so perhaps not an up to date guide, but any cooling in the property market will perhaps have the stock market wondering whether another RBA rate cut really is a given.
Perhaps today’s unemployment numbers hold the key.
China Slows
Halfway through yesterday’s local session, Chinese data for January-February were released. Industrial production growth slowed to 6.8% over the first two months, which is the slowest rate of growth since the GFC and the slowest rate otherwise since data began being kept in 1995.
Retail sales growth slowed to 10.9% over the period from December’s 11.9%, and fixed asset investment slowed to 13.9% from 15.7%. The Jan-Feb data are combined given the New Year holiday and once again, we have to acknowledge the disruption to the data that holiday causes every year. But there’s no hidden silver lining in this cloud. China’s economy is slowing.
Economic growth, analysts note, appears to be markedly weaker than the improved February PMI data, released last week, might indicate.
Greenback Surges
The US dollar index surged again last night, up 1.1% to 99.68 as the slide in the euro accelerated. The euro is now in the US$1.05s and no one sees any reprieve before parity, and likely beyond. Meanwhile, talk continues that the Fed will remove the word “patient” from its FOMC statement next week. While across the market commentators are laughing despite themselves at how everyone is so hung up on semantics, it matters.
Having fallen sharply on Tuesday night, last night Wall Street chopped around without any conviction either way. The market did nevertheless open stronger and close weaker. The countdown is now on to that statement release, due a week from now, and the accompanying quarterly press conference with Fed chair Janet Yellen, her first for the year.
Thus Wall Street may clam up until then, barring any left of field developments, but meanwhile the Germans are saying if it worked for the US, presumably it will work for us too. As the euro keeps falling the German stock index keeps rising. The DAX was up 2.7% last night and is up over 20% in 2015. The same thing occurred in Japan in 2013-14 until fiscal policy changes killed off the excitement.
Any pending fiscal policy changes in Europe would likely be more accommodative rather than restrictive, or shall we say, less “austere”.
Commodity Pressure
The surging US dollar continues to damage commodity prices. All base metal prices were down again in London last night between 0.5-2.0%, with copper down 0.6%.
Tuesday’s bounce proved short-lived for iron ore, which is down US80c to US$57.70/t.
Gold is down US$7.10 to US$1154.70/oz.
Last night’s weekly US crude inventory data showed yet another build to record levels, sending West Texas down US32c to US$48.33/bbl. Greater attention is now being given to the supply balance between WTI and Brent crude, that latter of which is not in oversupply and is more susceptible to geopolitical disruptions. Brent thus rose US$1.32 to US$57.88/bbl last night to re-establish a more realistic spread.
The good news, if there is any, is that all those commentators calling fair value for the Aussie at 75 when we were up over parity are now seeing their chickens come home. A fall over the past 24 hours of 0.4% has taken us to US$0.7598.
Today
The SPI Overnight closed up 5 points.
February unemployment data are out today in Australia. They will be considered critical for the RBA’s next policy decision.
In the US, retail sales data will be tonight’s highlight.
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