Daily Market Reports | Sep 11 2015
By Greg Peel
The Dow closed up 76 points or 0.5% while the S&P gained 0.5% to 1952 and the Nasdaq added 0.8%.
Back in your box
This week we have seen the ASX200 dip below 5000 on the open on Monday morning following weakness on Wall Street, but recover to close above that mark for the third time since the correction. This suggested 5000 is a floor, and it was thus no surprise the index took off on Tuesday.
But Tuesday also featured Woodside’s takeover bid for Oil Search, thus prompting outperformance for the energy sector. Meanwhile, investors decided that at these levels, the beaten-down banks looked attractive, particularly on a yield basis.
Having rallied over 2% on Tuesday, the banks rallied again by over 3% on Wednesday. The financials sector was far and away the major driver of the ASX200’s recovery to 5200. Then yesterday, the wheels fell off.
The biggest loss yesterday was reserved for the energy sector – the sector which had stuck its neck out a bit far earlier in the week. It fell 3.8%. Sure, the oil price fell again overnight, but while WTI has been to-ing and fro-ing of late with heightened volatility, it has really only oscillated around the mid-forty level without going anywhere much. Analysts do not expect Woodside’s bid to succeed but that matters not. Energy sector M&A has been anticipated for some time and the Genie is now out of the bottle.
Outside of energy, every sector copped a beating yesterday of 1.5 to 3% (excluding insignificant info tech). The banks lost 2.7%, but then the telco lost 3.0%. Materials fell 2.1% despite another tick-up in the ore price and stability in base metal prices. Yesterday was thus an index-selling day, rather than a sector-specific attack. The selling is thus not yet over, and it is likely the two dark clouds of China slowdown and Fed rate decision are ensuring enough fund managers are still not convinced the story has played out yet.
The good news is that yesterday took us back to just below 5100, and not all the way back down to 5000. While sell-on-close orders forced a late dip, the low of the day was actually just before midday, so we did not close on the low. If the index holds its ground today (SPI Overnight up 21 points), and being a Friday we should see less volatility, then we will have established a higher low. A positive sign, for now.
The Fed remains the swing factor. But one thing to remember is that the bottom of a correction is never immediately apparent at the time. More realistically, investors wake up one day to realise that the dust has settled and the market is actually moving up again.
Data
The ASX200 bottomed yesterday on the release of the local August jobs data. While the unemployment rate fell to 6.2% from 6.3% in July as expected, the actual jobs added figure was greater than expected. The jobs market is holding pretty steady for the time being.
The result sparked a big surge in the Aussie – unsurprising given everyone’s short. Market volatility and the China slowdown have recently heightened the possibility of another RBA rate hike, and this week’s RBNZ rate cut only served to further fuel that fire, but RBA rhetoric is suggesting nothing of the sort. The Aussie spiked on the release and kicked on overnight on a weaker greenback to be up 1.2% at US$0.7076 this morning.
Alongside the local jobs numbers yesterday we saw China’s August inflation data. The good news is China’s headline CPI jumped up to 2.0% annual growth from 1.6% in July. The bad news is most of that jump was due to a surge in volatile pork prices. Beijing does not publish a core (ex food & energy) inflation number so economists have to make their own calculations.
The other bad news is that the headline PPI fell for the 42nd consecutive month to be down 5.9% annually. That’s a drop from July’s 5.6% and the worst reading since September 2009’s minus 7% at the time commodity prices were crashing. The good news is this number will only encourage Beijing to steel its stimulus resolve.
Wall Street
Markets were weak across the Asian time zone yesterday and that weakness carried into Europe and the UK. But whereas this might typically prompt early weakness on Wall Street, instead the US stock indices rallied in the morning. The impetus for the rally was yet another volatile session for the oil price, which jumped 4%.
By 2pm the Dow was up around 190 points but that’s when the Nymex closed and oil trading went electronic. The WTI price drifted back a little, and so did US stocks, almost back to square. Late buying saved the day.
Fed, Fed, Fed – that’s all anyone can talk about. Until the September meeting is concluded next Wednesday night, we can’t expect any great market move beyond ongoing intraday volatility. Last night Goldman Sachs put out a note reiterating its call that the Fed will not raise in September, but in December. We might call this simply one view among many, except for the disturbing relationship Goldman has with the US Treasury and the Fed.
Last night the US ten-year bond yield rose 4 basis points to 2.20%.
Commodities
Latest prices have West Texas crude up US$1.60 or 3.6% at US$45.73/bbl. Brent is up US$1.27 or 2.7% at US$48.77/bbl.
Base metal trading was again subdued last night except for nickel and tin. Nickel decided to jump 4% and tin 2%.
Iron ore jumped US$1.60 to US$58.50/t.
The US dollar index fell 0.4% to 95.54 allowing gold to claw back US$4.90 to US$1110.30/oz.
Today
As noted, the SPI Overnight closed up 21 points or 0.4%.
It would not be surprising to see another very “Friday” session today, in which the week’s volatility wanes and no one wants to get excited either way ahead of the weekend.
On Sunday Beijing will release August industrial production, retail sales and fixed asset investment numbers.
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