Daily Market Reports | Oct 09 2015
By Greg Peel
The Dow closed up 138 points or 0.8% while the S&P gained 0.9% to 2013 and the Nasdaq rose 0.4%.
Hesitating
My apologies for suggesting yesterday that Australia’s September jobs report was due. It seems the ABS has moved the date on me, shifting the release to next Thursday, which is a week later than has always otherwise been the case. Perhaps I missed an announcement.
Following strong leads from overseas, the ASX200 rocketed out of the blocks yesterday to jump 59 points from the bell, charging through the 5200 support level to above 5250. The breach of that support is a bullish sign, but often markets have to work hard at establishing what is finally a breach confirmation.
As it was, the index began to waver through the morning, and there was much anticipation regarding the opening of the Shanghai Exchange after China’s week-long break – a week which has seen a very strong global market recovery. The Shanghai index duly opened up 3%, and largely remained there for the rest of the session.
Not enough? The ASX200 suddenly plunged at lunchtime before wobbling its way to a close of up 12 points. At 5210, the index has held the 5200 previous resistance level, but it appears more needs to be done to convincingly push higher. Given the SPI Overnight is up 62 points this morning, it may be the case today.
If China was a disappointment then we would not have seen the best performers on the index yesterday being materials (+1.7%) and energy (+1.3%), offset by a 1.0% drop for industrials and a 0.9% fall for the telco. This looks like more of a switch trade. Calls of commodities and therefore resource sector stocks having now seen their lows have become stronger, and there’s a lot of potential recovering to do.
Backflip
Last night Wall Street did a whole lotta nothing ahead of the release of the minutes of the September Fed meeting at 2pm. Then the Dow rallied over 100 points.
It had been assumed that the Fed’s decision not to raise in September had been a close-run thing. The FOMC may well have been ready to pull the trigger, but at the last minute members were spooked by the level of market volatility in August on growing concerns for Chinese, and global, growth. They thus decided to hold off, but suggested a 2015 hike was still the likely outcome.
Well the minutes revealed that the decision was not as close-run as assumed. The FOMC really was quite worried about China, its inexorable connection to the US economy in today’s world, and the drag a weaker China would likely have on US inflation. Members were not concerned about market volatility, and indeed they shouldn’t be or no policy decisions would ever be made. Market volatility was due to the same China concerns held by the FOMC, so to be concerned about volatility per se would be to double up.
Members were also hesitant over US jobs. Clearly the slack in the US labour market had been overcome if one takes a “normalised’ unemployment rate as the guide. But wage growth remains minimal, and that’s not what one would otherwise expect. Without wage growth, inflation is not likely to push back above the Fed’s 2% target anytime soon. Put these two inflation-related considerations together, and the FOMC decided to wait.
The irony is that the rally we’ve seen this past week, beginning from an initial Wall Street plunge on the shock September jobs number, has taken the S&P500 back to where it was just before the September Fed meeting. On that day, when the Fed didn’t raise, Wall Street tanked, suggesting the market really wanted a rate rise. Last night, on the release of the minutes of that meeting which suggest the Fed was even further away from a rate rise than assumed, Wall Street rallied.
The S&P500 has now reconquered the 2000 mark.
It just goes to show that above all else, markets do not like uncertainty. Clearly Wall Street is buoyed by lower-for-longer monetary policy, as has been the case since the GFC, but when it looked like the Fed was set to raise, Wall Street said please just get this out of the way and end the speculation. Disappointment thus followed. Since the weak jobs report, and now greater insight from the release of the minutes (of the meeting held before the jobs numbers were released), Wall Street sees the uncertainty as having been nipped in the bud for now.
Interestingly, on the above scenario one would expect US bonds to be bought alongside stocks, on implication of lower for longer. But the US ten-year yield jumped 5 basis points last night to 2.11%, just to add some confusion.
Commentators suggest that the minutes were not so influential last night, and rather the bond market is focussing on a steepening of the yield curve, implying short-end bonds are indeed being bought but the long-end is being sold. This, it is suggested, represents foreign central bank selling from those countries looking to bolster their own finances, such as China and Japan.
Commodities
While LME traders have been keenly awaiting the return of the Chinese to metal markets, it seems no one was very keen to do anything radical last night ahead of the release of the Fed minutes, by which time the exchange was closed. Yet there was still disappointment the Chinese did not come barrelling in.
Hence aluminium, copper and zinc fell 1%, with other metals seeing smaller, mixed moves.
Iron ore rose US40c to US$54.80/t.
The oil markets were back in buying mode last night, and again WTI had a shot at US$50/bbl. But once again this proved a bridge too far for now. The oils still managed 3% gains on the session, with West Texas up US$1.48 to US$49.63/bbl and Brent up US$1.55 to US$53.24/bbl.
Last night it was not about supply/demand balances but about good old geopolitics. To date, oil markets have not paid too much attention to the war in Syria because Syria is not an oil mover and shaker, but now that Russia’s in on the game the mood is changing. Reports last night that Russian missiles aimed at Syria had strayed into rural Iran were unsettling.
The US dollar index is down 0.2% on the impact of the minutes at 95.31, but gold fell back US$6.10 to US$1139.90/oz.
If Fed policy is set to remain lower for longer, then pressure on the Aussie dollar is eased. The Aussie is up another half a cent at US$0.7258 and looks like, for now at least, the swinging sixties will have to wait.
Today
The SPI Overnight, as noted, closed up 62 points or 1.2%.
Australia will see August housing finance details today (I hope), which will provide more colour to an emerging picture of weaker building approvals and a clear drop-off in apartment building and sales.
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