Daily Market Reports | Jun 01 2015
By Greg Peel
Flyer
It would appear the technical activity we saw during last week on the local market gave way on Friday to fundamentals.
During the week, disappointing March quarter numbers for construction and capex suggested a tepid GDP result and importantly, little sign of any smooth transition from mining to non-mining for the Australian economy. The market has quickly assumed that RBA rate cut we were convinced earlier in the month would not be forthcoming now clearly will be.
The Aussie dollar began the week near 78.5 and ended the week near 76.5, slipping a little further by Saturday morning to US$0.7644. Australian bond rates, which had been drifting up recently to match selling in European and US bonds, have fallen back again.
A lower Aussie and lower bond yields are reason enough, in this market, to buy Australian yield stocks, be you a local or offshore investor. Thus the banks led the market up on Friday (+1.5%) and the telco (+1.1%) and utilities (+0.9%) chimed in. A combination of stronger iron ore and oil prices and the yield now available from the big resources names ensured materials (+1.1%) and energy (+1.3%) joined in the fun.
Having rebounded off support at 5600 the previous Friday, last Friday saw the ASX200 briefly breach 5800, up a stunning 90 points on the day, before settling back before the weekend to be up 60 points at 5777. The puts the index above the technical pivot level of 5750. If it can hold above here, the tea leaf readers suggest, then this time we should make it through 6000.
All because the Australian economy appears in danger of heading into recession. Go figure.
Contraction
Greek debt negotiations continued on Friday with the usual result of going nowhere. The bravado Mr Tspiras showed earlier in the week, suggesting a deal was close that would be a big positive for the Greek economy, faded away as the Greek prime minister harshly criticised the reforms being insisted upon by the creditors, calling them ridiculous.
And so it goes on. It was enough to send major European stock indices down over 2%, nonetheless.
Wall Street opened its session on Friday night with the news the US economy did indeed contract in the March quarter, at least according to the first revision. It showed minus 0.7%, down for the first estimate of plus 0.2%, but at the end of the day it was not quite as bad as some had feared.
Elsewhere, US data releases were mixed. The Chicago PMI plunged into contraction in May to 46.3, down from 52.3 in April. The fortnightly Michigan Uni consumer sentiment index fell to 90.7 from 95.9 at end-April, but at least beat expectations of 89.9.
These weaker data points followed on from some very upbeat housing market numbers during the week, and only serve to leave Wall Street confused as to whether the US economy is rebounding out of the snowbound first quarter, just as it did last year, or not. And if it is or it isn’t, is that good or bad in relation to what the Fed may or may not do about it?
The US ten-year bond yield fell 3 basis points to 2.10% on Friday night, as one might expect on the weak GDP revision. The US dollar index stalled at 96.89.
On the US stock market, the Dow closed down 115 points or 0.6%, the S&P fell 0.6% to 2107, and the Nasdaq also lost 0.6%. Wall Street ended the week lower but the month of May higher, by all of 1%. But hey, it was May.
Oil Surge
It looks like the oil markets had set themselves a little to the short side ahead of this Friday’s OPEC meeting, on the assumption there would be no change to the cartel’s current policy of damn the torpedoes, let the US handle production curtailment. When Friday’s market data releases showed another drop in the US rig count and a big jump in gasoline demand, as summer looms in the north, somewhat of a scramble ensued.
West Texas leapt US$2.33 or 4% to US$60.30/bbl and Brent jumped US$2.51 or 4% to US$65.45/bbl.
It was a different story in metal markets, where traders were more focused on the weak US GDP number and a lack of drop in the US dollar as one might otherwise expect. All base metals bar tin fell in price, with copper, aluminium and nickel all down 1.5% and lead and zinc down 2%.
Iron ore fell US90c to US$61.40/t.
The steady US dollar also meant gold was relatively steady at US$1190.00/oz.
The big jump on Bridge Street on Friday and weakness on Wall Street on Friday night led the SPI Overnight to close down 17 points or 0.3% on Saturday morning.
The Week Ahead
It’s all happening this week on the Australian economic front.
Today we’ll see March quarter company profits and inventories, and tomorrow the current account, which includes the terms of trade numbers. Then on Wednesday, the GDP result is released. In the December quarter, the Australian economy grew by 0.5% quarter on quarter to be up 2.5% year on year, and this quarter economists are forecasting 0.6% qoq growth but a fall-back to 2.0% yoy growth.
On the strength of last week’s component releases, or lack thereof, that 0.6% may be at risk.
Which brings the RBA into the frame. The central bank will hold a policy meeting this week, but given it is held on Tuesday, ahead of the GDP release, it is unlikely we will see a rate cut. The RBA’s May statement was the most upbeat for some time, so the board will likely want to see some more data before panicking.
And this week we’ll see plenty.
In terms of monthly data, today brings building approvals, house prices, the TD Securities inflation gauge and the manufacturing PMI. On Wednesday it’s the services PMI, Thursday retail sales and the trade balance, and Friday the construction PMI.
Today also sees Beijing release its official manufacturing PMI and services PMI while HSBC will offer its own manufacturing PMI and a services PMI on Wednesday. Japan, the eurozone, UK and US will all release manufacturing PMIs today and services PMIs on Wednesday.
Both the ECB and Bank of England will hold policy meetings this week but no change is expected to existing policy measures.
Alongside PMIs, the US will see construction spending and personal income & spending tonight, factory orders and vehicle sales tomorrow, the trade balance, Fed Beige Book and ADP private sector job numbers on Wednesday, chain store sales on Thursday and consumer credit and the non-farm payrolls report on Friday.
The Fed will be on the edge of its seat.
Rudi will appear on Sky Business on Wednesday at 5.30pm and on Thursday at noon and again between 7-8pm for the Switzer Report.
For further global economic release dates and local company events please refer to the FNArena Calendar.
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