Daily Market Reports | Apr 09 2015
By Greg Peel
The Dow closed up 27 points or 0.2% while the S&P gained 0.3% to 2081 as the Nasdaq rose 0.8%.
Orange Invasion
The Poms will be having flashbacks to the reign of William and Mary following Shell’s US$70bn takeover bid for BG. Royal Dutch Shell that is, looking to take out the old British Gas. Analysts have long talked about a positive impact of falling commodity prices being potential consolidation through M&A, in which the strong devour the weak and strengthen the market at the bottom of the cycle.
They’ve talked about it, but in the haze of oil price volatility the punters were never going to be confident until they actually saw it. Now they have. The Shell move yesterday floated all energy sector boats in anticipation of who might be next. The sweetener was Shell’s indirect endorsement of Australian CSG LNG, given BG’s massive QCLNG project in Queensland, nearing completion, is a primary acquisition for Shell. Yesterday the local energy sector rose 2.5%.
What’s another commodity that’s fallen in price from over US$100 to under US$40? Oh yes, iron ore. Shell left no one in any doubt its precocious move was all about exploiting the weak oil price. Australia’s struggling iron ore miners are also prime targets for such a swoop. The materials sector was up 1.3%. Resources led yesterday’s rally.
Minute by Minute
The favourite sport on Wall Street is to second guess the Fed, suggesting the Fed actually knows exactly what it is going to do in the future but just won’t tell anyone. The Fed might be feeling pretty chuffed after having successfully brought the US economy back from the brink but it is not omnipotent, and does not control the rest of the world. Nor is it omniscient, thus it can only make decisions based on how developments play out. This is the whole point of policy decisions being “data dependent”.
Yet still Wall Street will freak out if a couple of FOMC members are still keen on a June rate rise – probably because they’d just like to get it over and done with and move on – and then will run the other way if someone else bemoans the destructive strength of the US dollar. If the Fed has been able to deliver any “forward guidance” at all in 2015 (one of my favourite tautologies, right up there with “plain vanilla”) it is that they will act if it seems appropriate to do so at the time and not if it doesn’t.
The minutes of the last Fed meeting, released last night, throw no light on when the first rate rise will be. The US stock indices chopped around last night as traders agonised over this reality, and settled to a flattish close when someone pointed out the weak March US jobs data had not been released when the Fed last met.
But we’ll keep on debating the subject relentlessly until it happens, just as we did for months ahead of QE2, QE2.5, QE3 and the Taper.
For the record, it appears the Bank of Japan will not be launching any monetary counter attack on the ECB, having left its policy unchanged once more yesterday. The FOMC will have been much relieved.
The US dollar index is 0.2% higher in the wake of the minutes at 98.08, the US ten-year bond yield is steady at 1.90%, and the stock markets went back to worrying about earnings at the bell. Alcoa’s after-the-bell result release showed a miss, underscoring the market’s, and the Fed’s, concerns over the impact of a too-strong greenback. Alcoa shares are down 3% in the after-market.
Oil Shock
Just when you thought it might be safe to jump back into the well, oil tanked again last night. The recent Saudi price rise for exports to Asia had energy markets all excited the bottom may now have been seen, but last night the weekly US inventory numbers showed the biggest one week jump in crude supply since 2001.
As you were.
And just to top things off, the Saudis released March production data last night, which represented a new record.
West Texas crude is down US$2.14 or 4% to US$50.98/bbl and Brent is down US$3.15 or 5% to US$55.24/bbl.
The LME closed last night before the Fed minutes release so there was some hesitancy amongst traders. A 1% claw-back for nickel and a 0.8% drop for copper were the biggest moves.
And speaking of claw-backs, iron ore rose another US30c to US$47.90/t.
Gold fell US$5.60 to US$1201.10/oz.
The Aussie dollar is still trying to find its new equilibrium level following the RBA meeting, and it is up 0.6% to US$0.7684.
Today
The SPI Overnight closed up 4 points.
Gotta love those Sandgropers. It’s all talk of succession when the iron ore price is 140 and then it’s demanding more GST from the commonwealth when the iron ore price is at 40. As to how the resource companies have fared over the past three months of wallowing prices we’ll shall begin to find out from today, when AWE Ltd ((AWE)) releases its March quarter production report. The rest of the sector will follow throughout the month.
We’ll also see Australia’s construction PMI today.
Rudi will appear on Sky Business' Lunch Money, at noon, and again on Switzer TV, between 7-8pm.
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