Daily Market Reports | Mar 28 2011
By Greg Peel
Just when it seemed the situation at the Fukushima plant was stabilising, the weekend brought news of radiation being detected in seawater near the plant suggesting the core of reactor 3 may have been breached and fuel rods exposed to the air. “The situation is still unpredictable,” said Prime Minister Kan, “and we are still working to prevent it worsening”. The Japanese authorities urged residents outside the previous exclusion zone to now move further away.
The Japanese reactor was not yet an issue during the Wall Street session on Friday night. A final revision of the US fourth quarter GDP to 3.1% growth from 2.8% (3.0% expected) reminded traders of the recovery that was underway in the US before the MENA unrest and the earthquake which, along with some solid out-of-season earnings results, was enough to push indices higher yet again. Never mind that we will conclude the first quarter '11 this week and that more recent US data have been a little less inspiring.
The Dow added 50 points or 0.4% while the S&P gained 0.3% to 1313. Another 2.3% is required to retake the February pre-drama high.
The big move on the night was in the US dollar, which rose 0.6% on its index to 76.18. It was a double-whammy impact as Standard & Poor's downgraded Portuguese debt again and Fed committee member Charles Plosser suggested the central bank should raise the funds rate from its current 0-0.25% range to 2.5% within a year beginning in the “not too distant future”. June is in the not too distant future, and that's when QE2 is slated to end. The QE2 program is estimated to equate to a funds rate of negative 0.75%, and Plosser's remarks put him at odds with some commentators suggesting QE3 will be needed.
The Portuguese situation may have been reason for the EU leaders to speed up their emergency fund plans at the weekend's summit but instead a decision was again delayed, assisting euro weakness. Germany is now a stumbling block with upcoming state elections seen as a reason for Chancellor Merkel to stall.
Despite the big move up in the US dollar, commodity markets were subdued on Friday. Brent oil was little changed at US$115.59/bbl, base metal movements were minor and mostly up, gold was steady at US$1428.60/oz and even silver had a quiet session. The Aussie dollar nevertheless pushed higher yet again by 0.4% to US$1.0252, which is about as high as it's been recently. Traders have spoken of a very big AUD-EUR buy-order in the market – some $10bn – that has sparked talk of an significant impending takeover bid for a locally listed large-cap.
Despite Wall Street's strength, the SPI Overnight was down 9 points or 0.2%.
We are now entering the final week of the March quarter which, all things being equal, can mean some possible upward pressure on stock prices as fund managers try to improve their recorded quarterly returns.
Such pressure in the US will come amidst another busy round of economic data releases, beginning tonight with pending home sales, personal income and expenditure, and the Dallas Fed manufacturing index. Tuesday it's the Case-Shiller house price index and the Conference Board consumer confidence survey, while on Wednesday the ADP private sector unemployment number is due. Thursday sees the Chicago PMI and factory orders.
The big day comes on Friday, which being the first on the month sees the coincidental release of the official non-farm payroll numbers and the manufacturing PMI. Friday is manufacturing PMI day across the globe as all of Australia, China, the UK, eurozone and US release their results.
It's a quieter week in Australia, which begins on Wednesday with the HIA new home sales number. Thursday is the busy day with all of retail sales, private sector credit, building approvals and the RP Data-Rismark house price index being released. Friday sees the manufacturing PMI.
A couple of notable releases elsewhere will be the final revision of the UK fourth quarter GDP on Tuesday, and an estimate of eurozone CPI for March on Thursday. Both will influence expected rate rises from both camps next month.
Note that this week is the last week of Daylight Savings time in Australia. Next week the NYSE will close at 6am Sydney time.
Rudi will make a regular appearance on Lunch Money on the Sky Business channel on Thursday at noon.
For further global economic release dates and local company events please refer to the FNArena Calendar.
