Daily Market Reports | Mar 23 2018
| World Overnight | |||
| SPI Overnight (Jun) | 5829.00 | – 89.00 | – 1.50% |
| S&P ASX 200 | 5937.20 | – 13.10 | – 0.22% |
| S&P500 | 2643.69 | – 68.24 | – 2.52% |
| Nasdaq Comp | 7166.68 | – 178.61 | – 2.43% |
| DJIA | 23957.89 | – 724.42 | – 2.93% |
| S&P500 VIX | 23.34 | + 5.48 | 30.68% |
| US 10-year yield | 2.83 | – 0.08 | – 2.58% |
| USD Index | 89.87 | + 0.23 | 0.26% |
| FTSE100 | 6952.59 | – 86.38 | – 1.23% |
| DAX30 | 12100.08 | – 209.07 | – 1.70% |
By Greg Peel
En Route to 5800
There is nothing terribly wrong with the Australian economy at present. Yesterday’s jobs numbers showed the net addition of 17,500 in February, split as an increase of 64,900 full time jobs and a decrease of -47,400 part-time jobs.
The net number missed 20,000 expectations, but rarely do expectations ever match the result. It was the seventeenth consecutive month of gains.
The disappointment was not in that miss, but the fact that despite the healthy increase in full-time workers, the unemployment rate rose to 5.6% from 5.5% and the underemployment rate (would like more work) rose to 8.4% from 8.3%. The participation rate rose, suggesting more active job seekers, but all up the numbers indicate there is still slack in the labour market.
And that means wage growth will remain subdued. That means consumers will remain nervous about their levels of household debt, as will the RBA, despite business confidence being at record highs.
Businesses may be slightly less confident this morning.
The news came through in the local market yesterday that Trump’s already flagged US$60bn trade tariffs set to be placed on China will target products which reflect alleged intellectual property theft. The amount is either US$50bn or “up to” US$60bn depending which report one reads. The issue with targeting IP is that it could mean just about anything.
And that implies retaliation, and that implies a global trade war.
Yesterday the ASX200 went on another meandering ride before closing down -13 points, which netted out a similar gain on Wednesday after a similar meandering ride. The Fed meeting was considered a non-event, the jobs numbers were so-so, which means trade fears must have had some impact on the fact every sector was down by decent amounts, bar two.
Saving the day were a 1.3% rise for energy and a 1.4% rise for materials, thanks to strong oil and gold prices overnight and a bounce for iron ore. The irony is that oil fell back last night on trade war fears and iron ore and base metals prices also retreated.
US companies made the mistake early this century of keeping their design and sales operations onshore and outsourcing the costly manufacturing middle-step to low-cost China. The Chinese sent back completed US fridges, for example, and before too long started exporting very similar looking fridges “designed” and made in China, costing half the price.
One might say that was where the trade war, if that is what is to transpire, had its origins.
A global trade war does not bode well for exporting economies such as Australia’s, particularly when our major trading partner is the “enemy” in the scenario.
The futures are down -89 points this morning.
Let me count the ways
Wall Street has been wallowing of late without any real leadership sector, with trade war fears a dominating factor. Last night came the crunch.
It began with the Bank of England’s policy meeting last night. While it was expected the BoE would keep its rate on hold after having hiked in November, with Brexit uncertainty an ongoing influence, particular mention of a possible trade war as being another factor in the policy decision set UK and European stock markets tumbling.
This was the scene that met Wall Street as US markets opened.
Trump had already flagged US$60bn of tariffs on China but it is the IP part that has broken the camel’s back. The big industrials, such as Dow components Boeing and Caterpillar, tanked.
Retaliation is assumed from China, and that puts the Big Tech companies in the frame. The EU is also preparing to tax US tech companies, so it’s coming in from all sides. The Nasdaq tanked.
Notwithstanding the ongoing Facebook data breach issue, which is in itself another drag.
Just to add insult to injury, US coal miners also tanked. They had enjoyed a solid bounce earlier in the month when the steel and aluminium tariffs were announced, but since that time the list of exempted countries has become longer as Trump tightens his attack on China in particular, undermining the value of the initial tariff announcement.
Trade war fears sparked a rush into US bonds, whether simply as a “safe haven” or reflecting expectations a trade war would derail the US economy recovery. The ten-year yield has fallen -8 basis points to 2.83%, rendering this week’s Fed meeting rather moot. The irony here is China owns more US bonds than anyone. Retaliation?
But lower US rates, particularly when a move up through 3% has been anticipated anytime soon, is not good news for US banks. So they tanked.
Oil is the world’s most highly traded commodity. Trade war? US energy stocks tanked.
And just to top it all off, one of Trump’s lawyers acting for the president with regard the Russia probe resigned last night.
The S&P500 has broken major support. Next stop the February low.
Commodities
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 1328.60 | – 3.40 | – 0.26% |
| Silver (oz) | 16.36 | – 0.19 | – 1.15% |
| Copper (lb) | 3.02 | – 0.05 | – 1.49% |
| Aluminium (lb) | 0.93 | – 0.00 | – 0.20% |
| Lead (lb) | 1.07 | – 0.01 | – 1.18% |
| Nickel (lb) | 5.95 | – 0.12 | – 2.04% |
| Zinc (lb) | 1.46 | – 0.02 | – 1.48% |
| West Texas Crude (May) | 64.28 | – 1.13 | – 1.73% |
| Brent Crude (May) | 68.91 | – 0.74 | – 1.06% |
| Iron Ore (t) | 67.70 | – 0.20 | – 0.29% |
Weakness across the board, with oil and base metal prices hardest hit.
The US dollar index is up 0.3% but on trade implications, the Aussie is down -0.8% at US$0.7703.
Today
The SPI Overnight closed down -89 points or -1.5%. That would take us down to around 5850 in the ASX200. Solid support at 5800 held in February during the US inflation scare, thus the test will be to hold that level again if Wall Street now goes on with it.
Data for US durable goods orders are due tonight, funnily enough.
There’s nothing of note on the local calendar.
Rudi will connect with Sky News Business through Skype at around 11am to discuss broker calls and the shared market.
The Australian share market over the past thirty days…
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