Daily Market Reports | Jun 03 2015
By Greg Peel
The Dow closed down 28 points or 0.2% while the S&P lost 0.1% to 2109 and the Nasdaq lost 0.1%.
Technicality
Last night the popular press explained yesterday’s crash on Bridge Street as being the result of the RBA not cutting rates. It’s a simple concept even the great unwashed might be able to grasp, but it’s also a complete load of rubbish.
At 2.29pm yesterday the ASX200 was down 80 points. That the index fell another 19 points to the close in what was a rolling 1.7% sell-off is a triviality. Indeed, there was a slight bounce at 2.30pm, but a short-lived one.
There was also a brief bounce at 11.00am, at a time the index was already down 63 points. This was sparked by the release of Australia’s March quarter current account numbers, including the terms of trade. These numbers came as a shock. A positive shock.
Australia’s trade surplus rose by 24% in the quarter, driven by a 5.8% increase in exports, thanks to a 6.9% fall in the Aussie dollar over the period, outpacing a 4.0% increase in imports. This trade balance will add 0.5 percentage points to the March quarter GDP, due out today. Prior to yesterday, economists forecast zero contribution from trade. Economists are typically conservative, measured types. You’ve never seen a bunch of guys and gals scramble so fast to revise their estimates as they did after yesterday’s current account release.
Previous consensus was for 0.5% quarter on quarter growth. Revisions now stretch up as far as 0.9%.
One might argue that these positive trade numbers will kill off any hopes of another RBA rate cut, and that’s why the 11am bounce for the ASX200 proved short-lived and the selling resumed in earnest once more. However the bottom line is that yesterday’s 99 point drubbing was technical. Whether or not you believe in the tea leaves, enough people do to make those tea leaves self-fulfilling. Tech analysts have been boring everyone for about a month with an unchanged mantra that if the ASX200 cannot hold over 5750, it must go down.
And so yesterday, it did.
Sector moves? Well, they matter not. Everything was creamed. It was technical.
Aussie Aussie Aussie
Last night the popular press explained yesterday’s surge in the Aussie dollar as being the result of the RBA not cutting rates. It’s a simple concept even the great unwashed might be able to grasp, but it’s also a complete load of rubbish.
Well…actually in this case there is an element of truth. The stock market was never going to specifically react to no rate cut because no one expected a rate cut. Forex cowboys nevertheless hail from another planet, so at 2.30pm yesterday the Aussie did spike up. But the Aussie had already spiked up at 11.00am on the release of those surprisingly positive trade numbers, which is what one might expect. Clearly the market was set short ahead of yesterday, so by the afternoon the short-covering scramble found another gear when the RBA stayed put.
It was not the fact that the RBA didn’t cut that caused the spike nonetheless, it was this line from Glenn Stevens accompanying policy statement:
“Information on economic and financial conditions to be received over the period ahead will inform the Board's assessment of the outlook and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target.”
And what information had we already received? A positive shock in the trade numbers.
Over 24 hours the Aussie is up a significant 2.2% to US$0.7777. It is not because the RBA didn’t cut yesterday. It is because today’s GDP release may come in better than previously expected, and that may yet kill off the possibility of rate cut anytime soon, and it’s because of Greece.
Capitulation?
The 2.2% gain in the Aussie to this morning has a lot to do with a 1.6% plunge overnight in the US dollar, to 95.93 on its index, which is all about a surge in the euro. I’ve noted recently the popular press have been trotting out Greece these past weeks an easy excuse for market movements when they really have nothing else to go by, but this time the Greece factor was indeed in play last night.
Last night Greece’s creditors – the IMF, European Commission and ECB – met to argue amongst themselves rather than argue further with the Greek government. That strategy has gotten them nowhere. The troika has persistently demanded Greece come up with an agenda of reforms, and Greece has persistently failed to do so, or at least has offered agendas the troika has abruptly dismissed.
So at wits’ end, last night the creditors decided to take matters into to their own hands and come up with an agreed agenda of reforms to give to Greece on a take it or leave it basis. If you want your money, they said, you’ll have to play it our way.
When Alex Tsipras heard this was what the meeting was all about, the Greek prime minister quickly drew up another version of his own reform agenda and thrust it at the creditors. Pure politics, of course; Tspiras must be seen by the people who elected him to be standing up to the troika and forcing its hand, not bowing meekly to its demands.
And so it goes on.
Last night’s meeting did suggest to the world the troika is prepared to do what it has to to try and keep Greece within the fold, at least within reasonable bounds. Throw in a stronger than expected flash estimate of eurozone May CPI, and the euro took off.
Wall Street Stalled
The Dow is struggling to break away, in either direction, from the 18,000 level at present. The S&P500 is similarly glued to 2100. Last night saw a mixed batch of news, and little in the way of direction.
US stock markets opened with the news factory orders had fallen short of expectations for the eighth month in nine. The indices opened to the low side, but by this stage the euro was rallying and the US dollar falling. This is good for exporters but also for the oil price, and so a turnaround rally ensued. Throw in announced record auto sales for the month of May, and the Dow did manage a 50 point gain at its peak.
But it’s jobs week, and no one wants to get too carried away. The Dow fell back to close down 28 points, balancing out the 29 points it closed up on Monday night.
Not so stagnant is the US bond market, which last night saw the ten-year yield jump 7 basis points to 2.27%. The sell-off in US bonds was triggered by a sell-off in German bonds, which was triggered by the news regarding Greece.
Commodities
As noted, the drop in the US dollar last night was enough to push up West Texas crude by US85c to US$61.06/bbl and Brent by US44c to US$65.38/bbl.
Action was more muted on the LME nonetheless, where traders are also cautious ahead of this week’ US jobs numbers. No base metal price moved more than 1%, and all moved in different directions.
Back from a break, iron ore is up US70c to US$62.10/t.
A 1.6% plunge in the greenback couldn’t excite gold traders, hence gold is up a mere US$4.40 to US$1193.00/oz.
Today
The SPI Overnight closed up 18 points or 0.3%. Bear in mind this time yesterday the SPI was up 17 points.
Australia’s GDP result is out today, and given all the downs and ups of lead-in component releases – construction, capex, trade – it’s become a bit of a guess and giggle.
Australia will also see a services sector PMI today, and HSBC will release its take on the Chinese services PMI. The rest of the world will follow tonight.
Tonight sees the ADP private sector jobs number is the US, and the latest Fed Beige Book.
Rudi will appear on Sky Business tonight, Market Moves, 5.30-6pm.
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