Daily Market Reports | Apr 02 2015
By Greg Peel
The Dow closed down 77 points or 0.4% while the S&P fell 0.4% to 2059 and the Nasdaq fell 0.4%.
Commodity Concerns
Yesterday’s morning session on Bridge Street suggested we might be in for a quiet start to April and June quarter, cementing arguments that a lot of the volatility seen in the last few days of March was as much to do with end-of-quarter shenanigans than anything else. But as the afternoon wore on the ASX200 drifted lower, weighed down by weakness in the resource sectors on the back of falling commodity prices.
For iron ore producers, it won’t get any better today.
Local building approvals slipped 3.2% in January but at 14.3% annualised growth, residential building is still a major driver of an otherwise sluggish economy. And we’re determined to abandon the old quarter acre block dream, given private house approvals are down 1% annually but apartment approvals are up 36.2%.
The strength of that number is encouraging but apartments are a lesser value “trade” for the economy compared to standalone houses, using fewer materials per unit.
More concerning is that house prices in Sydney jumped 3% in March alone, and across the country average prices are up 7.6% year on year. Nice for property owners but a worry for the RBA, and possibly a reason the central bank may hold off next week. But economists don’t believe housing is enough to prevent another cut. Maybe we’ll soon be seeing these macro-prudential controls so long spoken of.
PMI Parade
If housing construction is a bright light for the Australian economy, manufacturing is not. Australia’s manufacturing sector continues to contract despite a lower Aussie, with the manufacturing PMI for March showing a fall to 46.3 from 47.2 in February. I’ve lost track of how many months (years) the sector has now been in steady contraction, but I think it’s since Hills Hoist sales peaked.
The first of the month means manufacturing PMI day across the globe, and there were mixed results. The winners were the eurozone with a rise to 52.2 from 51.0, and the UK with a rise to 57.9 from 56.4. The losers were Australia, Japan (50.3 from 51.6) and the US (51.5 from 52.9).
China cancelled itself out. Beijing’s official result showed a swing into expansion at 50.1 from 49.9, but HSBC’s independent measure showed a swing into contraction to 49.6 from 50.7. Take your pick.
On top of Japan’s weak PMI reading, the March quarter Tankan Survey indicated sentiment among Japanese manufacturers was unchanged over the period, despite the weaker yen.
US Weakness
A survey of US fund managers released last night noted 90% of respondents believe the Fed will raise its cash rate in 2015 and that 85% of those same respondents believe the S&P500 will be higher at the end of the year. This result corroborates what I have been suggesting, that Wall Street has largely factored in a rate rise and just wants to get on with it. There would like be some volatility on the day, but those with a longer term view will not be concerned.
Nor is there a great deal of concern being shown with regard more weak US economic data. Last night featured a weak PMI, a drop in vehicle sales and the disappointing addition of only 189,000 new private sector jobs in March, according to the ADP report – the lowest addition since January 2014. This has curbed expectations for Good Friday’s non-farm payrolls number, but most commentators are quick to blame the first quarter weather, just as they did last year.
And given last year’s experience, they are assuming a rebound in economic growth in the second and third quarters.
The weak numbers did nevertheless mean a weak start to the June quarter for US stocks, with the Dow down 200 points from the opening bell. The buyers came in to trim that to a 77 point close by the closing bell, but a 7 basis point plunge in the US ten-year bond rate to 1.87% suggests not everyone is convinced the data are only weak because of snow.
Similarly, gold was suggesting lower for longer rates last night with a US$20.90 gain to US$1203.80/oz.
The US dollar index fell 0.1% to 98.23.
Ironed Out
Spot iron ore has fallen another US$2.00 or 4%, to a new low of US$49.00/t.
Nickel managed a comeback last night, following its precipitous fall, but the 2.8% rebound was put down to traders taking profits on their shorts and squaring up ahead of the Easter break. Other metal price movements were minimal.
Oil prices also rebounded last night, with West Texas jumping US$2.15 or 4.5% to US$49.68/bbl and Brent rising US$1.54 or 2.8% to US$56.73/bbl.
Weakness in oil prices earlier this week was driven by expectations Iran and the West were about to reach a deal, leading to the lifting of sanctions on Iran and a flood of Iranian oil onto the market. Last night it appeared negotiations had reached a bit of a stand-off, and that a deal was not as close as it had been assumed.
Today
The Aussie seems to have found a pre-RBA level here at US$0.76, with local markets closed until the Tuesday policy meeting.
The SPI Overnight is up an ambitious 23 points despite Wall Street and iron ore price weakness. One might argue that the market cap implications on the ASX200 of lower iron ore miner prices has diminished, assuming the two big players are supported by their dividends.
The trade balance is out today locally and TD Securities will publish its monthly inflation gauge.
Once upon a time, when the ASX actually used to close for lunch, the Thursday before Easter would be a half-day. Not so anymore, officially, but there’ll be tumbleweeds rolling down Bridge Street this afternoon as everyone heads off to their planes, trains and automobiles.
Or the pub.
Have a happy and safe break.
Rudi will appear on Sky Business' Lunch Money, noon-12.45pm.
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