Daily Market Reports | Apr 10 2015
By Greg Peel
The Dow closed up 56 points or 0.3% while the S&P gained 0.5% to 2091 and the Nasdaq added 0.5%.
Excitement Wanes
The announced deal which would see the biggest energy industry takeover in a decade lost some of its gloss for local energy names yesterday. On the not unreasonable assumption the Shell-BG deal would trigger more such action in the industry, local energy stocks jumped on Wednesday. But broker analysis has pointed out various impediments to Australia’s big names being targets, and found negatives amongst the general positive of support for the sector.
The energy sector thus fell back yesterday, by 0.9%, but a 1.3% fall was suffered in the materials sector. Materials also jumped on Wednesday, seemingly by association that if it can happen in energy, it can happen in iron ore. But the outlook for iron ore is a lot less encouraging than LNG, and anything beyond the most premium of mining assets looks a lot less enticing to suitors.
The ASX200 thus sunk further away from the elusive 6000 mark yesterday, having failed on its third attempt to break through the barrier. As Wall Street settles to assess March quarter earnings, consolidation locally is also on the cards after a rather volatile period.
There was good news for Australia yesterday, nevertheless, in that the construction sector has moved into expansion – just. The March PMI ticked up to 50.1, matching the service sector PMI which earlier in the week saw a reading of 50.2. That only leaves manufacturing to continue its seemingly entrenched contraction phase.
Greek Gift
Fears of a Greek default on the IMF dissipated last night as Greece made good on its E460m repayment instalment on the deadline. Supposed negotiations with Russia appear to have come to nought and Greece has told the IMF it intends to make good on subsequent payment obligations.
As to how this goes down with the Greek people is another matter, given the government was elected on the basis of not kowtowing to the IMF and EU and supposedly the payment to the IMF means wages and pensions will not be paid. Greece has six more days to provide an outline of further austerity measures to be implemented if the country is to receive its next bail-out tranche.
Perhaps Greece is just buying time.
The news provided encouragement for European markets overnight, as did a better than expected German industrial production report, sending the German DAX index up 1.1% into further record territory.
Jobs Focus
In the US the data is even more critical in light of the Fed’s data-dependent policy stance and no data is more important than employment. Weekly new jobless claims are a volatile and potentially misleading barometer until one looks to the underlying trend, as Wall Street did last night.
While new claims actually increased last week, the four-week average has now fallen to its lowest level since June 2000, at 282,250. How that compares on a population basis is by the by, given the result was enough to send the US dollar index surging 1% to 99.00 and the US ten-year bond yield up 6 basis points to 1.96%.
In the stock markets, the volatility of March has given way to a more subdued market in April as traders brace themselves for quarterly earnings results. The season is off to bad start, with the two big names having posted results after the bell on Wednesday night suffering falls last night. Alcoa fell 4% and Bed, Bath & Beyond fell 6%.
Commentators have warned against counting chickens this early nonetheless, and it is next week we start to see the season hot up with the big banks and many Dow stocks reporting.
It is possible Wall Street will hold at its current lofty levels until an underlying trend is clear. The biggest fear is the impact of the strong greenback.
Iran in Doubt
Stock markets are flip-flopping on every little tweak in Fed perception but the for the oil markets at present, Iran is playing the role of the Fed. A deal between Iran and the West, and the subsequent lifting of sanctions on Iran, has been on again, off again and then seemingly settled this week. But last night, according to Iran, it looks like being off again.
Given the lifting of sanctions means the release of Iranian crude supply onto the market, last night Brent rose US$1.61 to US$56.85/bbl having plunged on Wednesday night on record US and Saudi production data. The US record continues to haunt the Nymex nonetheless, with West Texas losing US23c to US$50.75/bbl last night.
The rise in Brent came despite the big jump in the US dollar and indeed base metals also appear to be trading with indifference to the greenback at present. LME traders have perhaps become sick of Fed speculation – my God haven’t we all – and are taking positions based on the rather anachronistic principal of fundamentals.
Remember those?
Last night copper was steady, aluminium lost 0.5% and nickel and tin 1%, while zinc rose 1% and lead jumped over 2%.
Iron ore fell US10c to US$47.80/t.
Gold is one metal that does often pay attention to the US dollar. It fell US$8.30 to US$1193.80/oz.
The Aussie dollar has drifted a little higher again, to US$0.7696, which is about where it spiked to post the RBA’s “on hold” decision release.
Today
The SPI Overnight closed up 17 points or 0.3%.
China’s inflation numbers for March are out today, but now that the PBoC appears to have joined the “whatever it takes” club of central bankers, or at least the “plenty of room to move” club, the result will not spark any great panic.
Locally, housing finance numbers are out today. A nurse is standing by with Glenn Stevens’ heart pills.
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