Daily Market Reports | Oct 14 2015
By Greg Peel
The Dow closed down 49 points or 0.3% while the S&P lost 0.7% as the Nasdaq fell 0.9%.
China Factor
At the beginning of the month we saw Chinese PMI numbers that were inconclusive. The market hung on to a reduction in the pace of manufacturing contraction according to the official data, preferring to ignore the independent Caixin result of accelerated contraction, and ignore reduced expansion in the now larger Chinese service sector.
Yesterday’s Chinese trade numbers can be similarly assessed with either a glass half full or empty approach. Exports fell year on year by 3.7% in September and imports fell 20.4%. Those numbers look bad in anyone’s book. But the export number is an improvement from the 5.5% yoy decrease marked in August, and is not as bad as was forecast. Hence, we might say that’s an encouraging result.
Imports, nevertheless, fell 13.8% in August so 20.4% looks rather alarming for an economy attempting to transition to domestic consumption-based.
How did Bridge Street respond?
Well the resource sectors took us down from the bell, responding to lower oil prices in particular, but ahead of the Chinese numbers the ASX200 was only down around 12 points. The sellers piled in once the numbers were known just prior to midday and by around 2pm the index was down 60 points. Clearly the Chinese numbers were a concern. But from there we rallied back to halve that loss, down only 30 points at the close.
If the resource sectors were weak to begin with, then these trade numbers were never going to help. Energy closed down 2.8% on the session and materials 2.0%. Next worst was consumer discretionary with 1.0%, where sales to China are a factor. But domestic-oriented sectors such as consumer staples and healthcare finished higher on the day, and a 0.7% rise for industrials was very healthy against a backdrop of yet another resource sector plunge. The banks were only down 0.4%, so there was no “Sell Australia” going on.
At least not in the stock market. The Aussie is this morning over a cent lower at US$0.7252 despite the US dollar index dipping 0.1% to 94.74. The short-covering rebound in the currency has clearly now run its course.
The domestic economic news of the day centred around NAB’s monthly business survey. There were no surprises when the September confidence measure jumped to plus 5 from plus 1 in August given Turnbull had seized the reins two weeks prior to the survey. However it must be noted that August was a month dominated by a plunging Chinese stock market and much subsequent wailing and gnashing of teeth, so we would expect an easing in that arena to have provided for some return to confidence.
Conditions remained unchanged at an elevated plus 9, reflecting solid local employment and profitability measures, ANZ’s economists suggest.
We also had RBA deputy governor Philip Lowe suggesting yesterday business conditions appear to be okay and firms are willing to hire, but as to whether this would convert into a much needed boost in non-mining capex to offset the resource sector decline he was not so sure.
There is also a lot of talk coming from stock analysts and from the central bank that the local housing boom may now have peaked, and to date it’s really only been housing that has provided the offset against the impact of low commodity prices on the Australian economy. It’s time now to see the lagged flow-through of the much lower currency start to make an impact on the numbers in other industries. We may recall that a decade or so ago, tourism, for example, was Australia’s second biggest contributor to GDP.
Mixed
Leading US bank and Dow component JP Morgan had always reported its earnings at the opening bell, but of this reporting season has now decided to do so after the closing bell. With Intel (Dow) an aftermarket reporter as well last night, Wall Street was set for another meandering session of quiet trade until these important results were known.
Wall Street did see the numbers from Johnson & Johnson (Dow), which came out as a mixed bag of earnings beat, revenue miss and guidance beat. But beat or not, J&J’s earnings were down sharply year on year thanks to what the company measured as a 16% currency impact, that being the strong US dollar. J&J shares closed down 0.6%, but in a market that had already opened weaker on the Chinese trade data.
After the bell, Intel beat on both earnings and revenues but traders did not like the report otherwise and Intel shares are down 2% in the aftermarket. Rail freight company CSX, a major coal hauler a la Aurizon/Asciano, also beat top and bottom and its shares are up 1%, but only after having fallen 2% in the session on the China numbers. CSX also posted a fairly dim outlook for coal, but no surprises there.
Forecasts for JP Morgan’s result had been so knocked down ahead of the result traders were prepared to back an easy beat, but alas the leading bank posted a miss on both the top and bottom lines. JPM shares are down 1.2% in the aftermarket.
All things being equal these results do not bode well for a positive start on Wall Street tonight, albeit one session’s results do not an earnings season make. Traders are holding out for at least a full week of numbers which feature more big banks and other significant Dow names before beginning to draw any conclusions.
Commodities
Responses in commodity markets to the China data were predictable. On the LME, only aluminium was little changed as all other metals fell around 1-1.5%.
Iron ore fell US80c to US$54.90/t.
After Monday night’s OPEC disappointment, the oils were once again weaker. West Texas fell US79c to US$46.75//bbl and Brent fell US$1.05 to US$49.17/bbl.
As noted, the US dollar was steady, but gold rose US$5.50 to US$1168.00/oz.
Today
The SPI Overnight closed down 30 points or 0.6% which would put us back at yesterday’s post-China low.
Today Beijing will report September inflation numbers.
Westpac will follow up locally today with its monthly consumer confidence report.
September retail sales numbers will be closely watched in the US tonight as the earnings results flow in, including those of Bank of America.
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