Daily Market Reports | Jun 24 2015
By Greg Peel
The Dow closed up 24 points or 0.1% while the S&P gained a point to 2124 and the Nasdaq rose 0.1%.
Step-Jump
It was not a very good day for day-traders yesterday on Bridge Street, which seems strange given the ASX200 closed up 74 points. But the 74 points was basically achieved on the opening rotation – the first half hour of trade – and the index wavered little from that level all the way to the closing bell.
Healthcare stood out with a 2% gain, while beleaguered consumer staples stood out with only a 0.4% gain, when all other sectors posted near to or above 1% positive moves. It was another “Buy Australia” session, likely replicating similar Greek-relief responses in trading around the globe, despite the fact the Australian market never really fell on Greece fears in the first place.
HSBC’s flash estimate of China’s June manufacturing PMI came out mid-session and had little impact on a market that had already made its trade for the day. The result could be interpreted as either good or bad. It was good, because the number rose to 49.6 from 49.2 in May, or it was bad because 49.6 means China’s manufacturing sector is still contracting, just at a slightly slower pace.
Japan was disappointed with its own manufacturing estimate, showing a dip into contraction at 49.9, down from 50.9.
Not Over Yet
European stock markets remained in a positive mood last night after Monday night’s big surges. The German index was up 0.7% and the French index up 1.1%. The Greek index, for what it’s worth, was up 6% last night following Monday night’s 9% gain. Everyone seems to be assuming a done deal.
Yet Angela Merkel did not seem particularly convinced when she was interviewed post Monday night’s developments, and on the other side of the coin, many left wing members of Greece’s parliament were downright angry. The Tsipras government is confident the Greek parliament will pass the new concessionary deal, but that appears far from certain, and indeed that concessionary deal is not yet bedded down.
Tsipras will meet again with the eurozone finance ministers tonight, and presumably the ministers will suggest that a deal is close, but we just need a few more austerity tweaks. The whole thing could yet again end in stalemate.
Even if a deal is reached, all that will be achieved is a staving off of the inevitable further into time, and a lingering source of future potential volatility.
Joseph Heller once satirised US post-depression subsidies for farmers, such that they were paid not to grow alfalfa. The more alfalfa they didn’t grow, the more they were paid. Tsipras intends to increase taxes on Greece’s rich. The more they are taxed, the more they can avoid.
The good news out of the eurozone last night, beyond the peripheral farce, was that the eurozone manufacturing PMI has reached a four-year high, according to last night’s flash estimate for June. It suggested a rise to 54.1 from 53.6. ECB stimulus, and a resultant weak euro, seem to be having the right effect.
Double Trouble
Over in the US, the day’s economic data releases were mixed.
A flash estimate of the US manufacturing PMI suggested a fall from 54.0 in May to a four-year low 53.4 in June. New durable goods orders fell a headline 1.8% in May, compared to 1.5% expectations, but stripping out lumpy aircraft orders left a 0.4% gain. New single-family home sales rose to a seasonally adjusted pace of 546,000 in May, compared to 525,000 expectations, to mark the fastest pace since February 2008. But this series is notoriously volatile.
There was no glaringly obvious trend in last night’s US data, yet it was still left to the Fed to cause ructions in the market.
Earlier in the month, the Fed’s policy statement and Fed chair Janet Yellen’s press conference gave markets the impression a September rate rise was now less likely than feared, and perhaps December would see lift-off. Last night Fed governor Jerome Powell suggested that it is possible there will be rate hikes in both September and December.
September is still a “coin toss” at this stage, he admitted, but assuming the jobs numbers continue their positive trend and inflation continues to tick up towards the Fed’s 2% target, then September is a goer. Powell also noted that critical to a September decision is the fact the US stock market is not in a bubble.
Last night the Nasdaq, small cap index and mid-cap index all hit new all-time highs. But the S&P500 and Dow are still just under, and indeed, to Powell’s point, Wall Street has not really gone anywhere much all year.
The Dow was up 70 points from the open last night, following Europe’s lead, but Powell’s comments took the wind out of the sails. Not that his two-hike view is a shock, and indeed it matches the view of many in the market.
But it was enough to send the US ten-year yield up another 5 basis points to 2.41%, and the US dollar index surging up 1.2% to 95.47.
Commodities
Such a jump in the greenback would usually spell trouble for commodity prices but last night’s trade on the LME was the first chance to respond to the news from Greece regarding a possible deal. Aluminium and zinc rose 1%, copper and lead rose 2%, and nickel jumped 3%.
Iron ore fell another US10c to US$60.50/t.
The oils were also stronger, despite the dollar. West Texas rose US84c to US$61.08/bbl and Brent rose US$1.14 to US$64.47/bbl.
The US Defense Secretary was in Estonia last night signing a deal that will see US military hardware and forces deployed in the country as a counter to Russian imperialism. This reminded oil markets that outside of Greece there is a cold war going on, resulting in sanctions against major oil and gas producer Russia.
The Aussie saw no relief from the US dollar surge either, and is steady at US$0.7733.
Today
The SPI Overnight closed up one point.
It’s a watch and wait story now on the Greek front.
Tonight will see the final revision of the US March quarter GDP result ahead of next month’s first estimate for the June quarter. Economists expect the minus 0.7% shock of the last revision to be improved to minus 0.2%. But it’s now ancient history.
Rudi will appear on Sky Business' Market Moves, 5.30-6pm.
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