Daily Market Reports | Jun 02 2015
By Greg Peel
The Dow closed up 29 points or 0.2% while the S&P gained 0.2% to 2111 and the Nasdaq rose 0.3%.
Insanity
So tell me: what changed between Friday and Monday as far as Bridge Street is concerned? Greece? Give me a break. That long running saga is just something the media trots out each time it cannot otherwise rationalise market movements. Building approvals? Well that was a slight disappointment but nothing to sell the farm over and besides, all last week we saw worrying Australian data but that didn’t stop the ASX200 being up over 90 points at one stage on Friday.
And then yesterday it was down over 90 points before midday, and most of that fall was in place before the building approvals release. For the record, building approvals fell 4.4% in April, worse than the 2.0% expected. Housing is about the only thing driving the Australian economy at present, and not by enough to overcome contraction elsewhere. But most of that 4.4% represented lump apartment block approvals, and net approvals were up a very healthy 16.3% year on year in April.
The bottom line is, there was very little to justify the rally on Friday, and nothing to justify why the mood might change so spectacularly over the weekend. If you’re a longer term investor you might as well just sit back and laugh while the idiots play their games. Intraday volatility on Bridge Street is off the scale, but the ASX200 has done nothing but range-trade since the beginning of March.
Yesterday’s rebound from the bottom, such that we only closed 40 points down, occurred after the index breached 5700. I suggested the other day it looked like 5700 was the new 5600 in terms of bargain hunter support. But if you believe in the technicals, yesterday’s failure to hold over 5750 means we’re headed south.
And seriously, what would presently justify a major move north?
PMIs
In case you missed it in yesterday’s dust, Australia’s manufacturing PMI rose to 52.3 last month from 48.0 in April. That means expansion. Woohoo!
The lower Aussie has been touted as the fillip, but I’m pretty sure this PMI has not posted two consecutive months over 50 in many years, it’s ridiculously volatile, and let’s face it, manufacturing is rapidly becoming an insignificant contributor to GDP.
Beijing’s manufacturing PMI for China has posted three consecutive months of expansion. This might sound like great news, except that at 50.2, the May number reveals three months of negligible expansion. Besides, at 49.2, HSBC’s own China manufacturing PMI has now posted three consecutive months of contraction.
Japan has managed to sneak back into expansion at 50.9, the UK ticked up very slightly to 52.0, the eurozone saw a more pleasing increase to 52.2 from 50.0, and the US was also pleased with a move up to 52.8 from 51.5.
It would seem the global manufacturing sector is just managing to grow overall. On official numbers we have 52.3, 50.2, 50.9, 52.0, 52.2 and 52.8. Given the vicious currency wars in play around the globe, it’s an interesting suite of numbers.
Wall Street
Wall Street was pleased with a stronger manufacturing sector in May and also pleased with a solid jump in construction spending in April, both of which support the thesis that negative economic growth in the March quarter was all about the weather. But when it came to last night’s personal income & spending data for April, the mood turned a little sour.
Incomes rose 0.4% in April, which is promising against the prevailing weak trend of 0.2%. But consumer spending post 0.0% change. Savings levels increased to 5.6% from 5.2% of income and have now been over 5% for five consecutive months.
Also of interest is the alternative measure of inflation that arises from the personal income & spending numbers. The core personal consumption & expenditure (PCE) measure posted 1.2% annualised growth in April. This compares to inflation as measured by consumer prices, ie the CPI, which showed 1.8% annual core growth in April.
The Fed prefers the PCE to the CPI. Thus if rising inflation is to be a trigger for the first rate rise, it’s a long way off. But on Friday we get jobs numbers, and that’s another trigger.
Wall Street initially rallied on the data last night before thinking better of it, with the Dow turning a peak 95 point gain into only a 29 point gain on the close.
But the US bond market saw it the other way. Spending and inflation aside, the currently volatile bond market decided the positive manufacturing and construction numbers justified expectations of a rebound out of the contractionary March quarter. Hence the ten-year yield rose 10 basis points to 2.19%.
The US dollar index also rose, up 0.6% on its index to 97.45.
China Syndrome
Commodities markets were more focused last night on Chinese data than on US data. On the LME, traders would probably have preferred to see Beijing’s official manufacturing PMI slip into the negative to match HSBC’s interpretation, which would bolster the chances of further stimulus. At 50.2, it’s sort of neither here nor there.
Thus metals prices were mixed on uncertainty, with aluminium up 1% and nickel up 3%, lead and zinc down 1% and copper down slightly.
The iron ore market was closed last night for a holiday, leaving the spot price unchanged at US$61.40/t.
Oil traders could not find any inspiration out of a very busy 24 hours of global data. West Texas was little changed at US$60.21/bbl and Brent fell US51c to US$64.94/bbl.
Gold is down a tad to US$1188.60/oz.
With the RBA meeting today, the Aussie is 0.5% lower over 24 hours at US$0.7608 but no one expects a rate cut today.
Today
The SPI Overnight closed up 15 points or 0.3%.
While there’s very little chance the RBA will cut, the market will still be clearly focused on the statement release this afternoon. Last month’s statement caught the market by surprise by being rather upbeat. All the data in the meantime – particularly last week’s quarterly construction and capex numbers – have been downbeat. What will the board have to say today?
Before that decision, we’ll see the March quarter current account numbers, including the terms of trade. At the end of the day, this is Australia’s driving force.
The eurozone will see a flash reading of May CPI tonight, while factory orders will be the focus on Wall Street.
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