Daily Market Reports | Nov 13 2015
By Greg Peel
The Dow fell 254 points or 1.4% while the S&P lost 1.4% to 2045 and the Nasdaq dropped 1.2%.
Seriously?
There are lies, damned lies and statistics. Economists are not quite sure which category yesterday’s local October jobs numbers fit into.
“While a positive update on the labour market is welcomed,” said ANZ, “we are very cautious about taking this month’s number at face value”.
“We are always wary of reading too much into the monthly labour force ‘lottery’,” said Westpac, “but even looking through the noise it’s hard not to conclude that current labour market conditions in Australia are strong”.
“Believe it or not,” said CBA.
The ABS suggests 58,600 new jobs were added last month, which would make it one of the biggest monthly job increases since Federation. Economists are being polite, but really the mood is one of this result being about as likely as a rank outsider winning the Melbourne Cup with a girl in the saddle.
Oh wait…
CBA puts forward a largely consensus view that this big jump represents a statistical swing following a couple of months of weakness, and that if we smooth out the numbers we’ll find Australia’s job growth trend to running at around 17k-20k per month. The unemployment rate fell to 5.9% in October but CBA expects it to oscillate around the 6% mark for a while yet.
Either that, or five minutes into the job Scott Morrison has proven to be an absolute genius.
Skittish forex traders are always prepared to take anything at face value, nonetheless. The Aussie is up 0.9% at US$0.7125 on the assumption any notion of another RBA rate cut was put to the sword yesterday. They could just as quickly change their minds tomorrow.
Yesterday’s flat close for the ASX200 also reflected the same assumption. Utilities, telcos and consumer staples – all yield stocks – finished in the red. The banks were up because although they are yield stocks, banks benefit from rising rates. Elsewhere it was a bad day for resources, with energy capitulating 3.2% and materials down 1.1%.
The story for those two sectors did not get any better overnight.
Commodities
ECB president Mario Draghi last night told the European parliament he did not see eurozone inflation recovering to the central bank’s target zone in the time previously assumed. Markets took this comment as code for “We will be extending QE in December”.
By rights such a comment should spark weakness in the euro, but the euro has already largely adjusted for such an expectation and last night no less than five Fedheads were providing their two bob’s worth across the Pond. Of the five, two were hawkish, two were dovish and one said nothing at all about a December rate hike or otherwise.
That was Janet Yellen. Is it any wonder Wall Street is in a pique of frustration over a central bank that publically spouts disagreement or clams up when the world is expecting some guidance? The lack of commentary from Yellen was taken by the market as a sign that perhaps there won’t be a rate rise in December. At every other public outing recently, Yellen has reiterated her expectation of a rate rise “this year”.
Thus the US dollar index pulled back a bit last night, down 0.3% to 98.65. But whatever the timing of said rate rise, commodity markets know it will eventually come. They also know the ECB will ease further. Put the two together and they both mean a strong US dollar ahead, and that means that without any noticeable pick-up in global demand, commodity prices must go lower.
Zinc fell 1% on the LME last night, aluminium, copper and tin all fell around 1.5% and nickel fell 3%.
Iron ore actually rose US10c to US$47.80/t. There is likely some support being offered by the tragedy in Brazil and subsequent loss of production.
West Texas crude fell US$1.39 or 3.2% to US$41.69/bbl and Brent fell US$1.65 or 3.6% to US$44.27/bbl.
Gold has already taken the hit, so it’s only down another dollar to US$1083.50/oz.
Stay Out
Weakness in commodity prices, particularly oil, was a major driving force behind Wall Street’s fall last night. But so was the Fed.
Many a commentator has been perplexed of late as to why Wall Street has been going either up or down on rate rise/no rate rise speculation of late and simply not being consistent. Is good news bad news or is good news good news? The answer seems to be different each time.
The real answer is that Wall Street simply does not care about a paltry 25 bip hike. Good God Almighty, can they just make up their minds and end the uncertainty. Uncertainty is the enemy of stock markets. Commodities aside, that is why the Dow fell 250 points last night.
Today
The SPI Overnight closed down 69 points or 1.3%.
The eurozone will see a first estimate of September quarter GDP tonight.
Retail sales will be the major release in the US, along with consumer sentiment and the PPI.
Spare a thought for Santa, who one minute is packing all the presents in the sleigh and the next minute is taking them out again.
The original “Santa Rally”, when first coined, referred specifically to a tendency for Wall Street to rally after Christmas Day and into the new year. These days the Santa Rally seems to have been extended to begin in November. We’re certainly not getting one right now, but will we get one at all this year?
We recall that 2013 was a year in which Wall Street spent the whole time agonising over Fed tapering – when it would begin. Sound familiar? Many a commentator suggested in 2013 that the then long awaited Wall Street correction would surely come the day the Fed announced a start date.
Commentators have spent all of 2015 suggesting a correction would come when the Fed announced its first rate hike, but we had a correction anyway. The day in December 2013 when the Fed announced the commencement of tapering, Wall Street initially fell. The next day it started rocketing, and did not stop until early 2015.
Santa no doubt has a big circle around December 16 on his calendar. Let us only hope the Fed brings the egg nog.
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