Daily Market Reports | Nov 17 2015
This story features COMMONWEALTH BANK OF AUSTRALIA. For more info SHARE ANALYSIS: CBA
By Greg Peel
The Dow rose 237 points or 1.4% while the S&P gained 1.5% to 2053 and the Nasdaq added 1.2%.
Resilience
Wall Street was accelerating to the downside when it closed on Friday night and commodity prices were all again mostly lower in that session, ensuring the local market would be under pressure yesterday morning. The Paris attacks added an additional level of expected downside.
But the world, it seems, has become inured to terrorist attacks and no longer reflects global fear through stock market sell-offs. History shows that such terror events initially prompt market sell-offs before recoveries that are swift and solid. This time around the world has decided the initial sell-off is the unnecessary part.
The ASX200 plunged 72 points from the open yesterday. The SPI futures had closed down 37 points on Saturday morning so the balance could be considered the Paris effect, but the index very quickly rebounded.
On a technical basis, the breach of 5000 brought in the buyers at least to some extent, with almost all sectors ultimately finishing in the red. The industrials sector (-1.3%) was one of the hardest hit, as therein lies all manner of companies connected to overseas travel and tourism. But a large part of the rally back to a less ominous close can be attributed to energy (+1.6%). On expectation the war against IS will intensify in the Middle East, buyers were no doubt anticipating a bounce in oil prices.
The index closed right on the pivot point of 5000, waiting to see what might transpire overnight.
Meanwhile Japan released its September quarter GDP result yesterday which showed a 0.8% year on year contraction, confirming that Japan is yet again in technical recession. The June quarter saw 0.7% contraction. While the result is another thorn in the side of Abenomics, and underscores just how significantly Japan’s earlier sales tax increase has hit an economy 60% reliant on consumption, economists are confident the December quarter will provide a bounce-back given improvement in more recent data releases.
Defiance
Tourism represents some 7% of French GDP, and already airlines and travel companies are offering refunds to those having planned trips to France. Fashion and high-end retail are also a major beneficiary of tourists to Paris. The French stock market plunged on the open last night but very quickly recovered to a flat close. Ditto the German market, while the London market fell briefly before rallying 0.5%.
Wall Street never blinked. It was a stumbling start, but buyers came in on a steady trend all session to a solid close. Commentators were surprised, expecting at least some fearful reaction in the country most likely to see terrorist events. The response was made even more surprising by the two steep falls on Thursday and Friday and Friday’s very weak close, which suggested the US indices could be in for more selling this week.
Wall Street also shrugged off another weak reading for manufacturing in the New York Fed region, with the Empire State index coming in at minus 10.7 from minus 11.4 last month when economists had forecast improvement to minus 6.5.
Traders also ignored a stronger US dollar, which is up 0.5% on its index to 99.39 on a typical safe haven trade. The strong greenback is a major factor in US September quarter earnings showing negative growth for the second consecutive quarter and negative revenue growth for the third. The stronger dollar also impacts on commodity prices, and for the US the most important commodity is oil.
Trouble in the Middle East? Oil would typically rally. But then IS has been in operation for some time now and oil prices have been retesting lows. Thus oil prices actually fell on the open on Nymex last night.
Then news came through US air strikes had begun targeting IS oil truck convoys. West Texas crude turned around on the news and rallied strongly, supporting stock indices.
Commodities
West Texas is up US$1.29 or 3.2% at US$42.06/bbl and Brent is up US$1.26 or 2.9% at US$44.87/bbl.
In earlier times one would expect a rally in gold as the haven against all things geopolitical. Those days are gone however, and if anything gold tends to be sold off at times of crisis in order to cover margin calls on plummeting stock positions. But stocks did not plummet and while gold did see some buying earlier on, it is currently flat at US$1081.90/oz.
The stronger greenback provided a headwind, as it did for base metal prices.
Sentiment is already at a low ebb on the LME. The Paris attacks, the stronger greenback, the Japanese recession and a weaker than expected reading on US manufacturing did nothing to brighten the mood last night. Copper was slammed, down 2.2%. Zinc fell 2%, aluminium and nickel fell 1.5% and lead and tin fell 1%.
Iron ore fell US10c to US$47.30/t.
The Aussie is down 0.5% to match the greenback’s rally, at US$0.7093.
Today
The SPI Overnight is up 66 points or 1.3%. We shall overcome.
The minutes of the November RBA meeting are out this morning and economists will be looking for clues, but the meeting pre-dated the astonishing October jobs report.
The US October CPI is out tonight, playing into Fed speculation.
AusNet Services ((AST)) will report interim earnings today while a large number of AGMs will take place across the country, including that of Commonwealth Bank ((CBA)).
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