Daily Market Reports | Jan 18 2012
By Greg Peel
The Dow closed up 60 points or 0.5% while the S&P added 0.4% to 1293 and the Nasdaq gained 0.6%.
The Australian market showed strength from the bell yesterday, regaining about three quarters of what was lost on Monday. European stock markets had not tanked on the downgrade news, as was likely the fear, and moreover France was able to borrow one-year money at a rate cheaper than only a week ago. But late morning the ASX 200 got its real kick and that was all about China.
While China has often been in the background as the European tragedy has played out, its presence has always been strongly felt. Would Europe – China's largest export customer – derail China's growth and subsequently send the global economy into recession? Fighting its own domestic inflation issues, Beijing has been forced to finely balance its monetary policy implementation with conflicting forces in mind, all with the intention of bringing the world's fastest growing economy in for a soft, and not a hard, landing.
In the December quarter of 2011 China recorded its slowest growth in two and a half years. The result of 8.9% year on year growth was down on the September quarter's 9.1%, and overall the Chinese economy grew by 9.2% in 2011 compared to 10.4% in 2010. Economists had predicted only 8.7% growth in December, which is why the local market was all a-buzz yesterday. China's growth is undoubtedly slowing, but looking at the numbers (and blindly affording them credence) you'd have to say a soft landing is being rather deftly achieved.
Industrial production for the month of December in China recorded 12.8% growth (yoy) up from 12.4% in November, and retail sales were up 18.1% compared to 17.3%. Such numbers defy what might otherwise have been expected from slowing European demand and general global nervousness. It was also noted yesterday that there are now more people living in China's cities than in its rural areas. China is no longer a nation of peasants.
All of the above was enough to send Australian resources stocks in particular northward, in anticipation of what was to come. And the London market delivered, with all metals bar nickel up 2-3%. West Texas crude jumped US$1.03 to US$100.72/bbl and Brent rose US85c to US$111.29/bbl.
The good news continued in Europe with the release of the German ZEW index of economic activity, which rose to minus 21.6 in January from minus 53.8 in December when minus 49.5 was expected. There followed a one-year bill auction from recently downgraded Spain, which settled remarkably at 2.049% compared to 4.05% only a month ago, and an auction of E1.5bn worth of six-month bills for the even more recently downgraded EFSF which, at a yield of 0.2664%, matched French rates and reflected strong demand.
Again we say: Standard and who?
The US was keen not to miss out either, with the Empire State manufacturing index rising to 13.5 in January from 8.2 in December against expectations of 11.5. This index has grown quietly since its negative period from June through October last year. With all of the above Wall Street was off to a flyer from the opening bell, up 152 Dow points early in the session.
As a close of up 60 in the Dow would nevertheless attest, the rally faded away as the session progressed. The issue is with US banks. JP Morgan (Dow) reported a disappointing quarterly result on Friday, and Citigroup followed with an earnings miss last night. Wells Fargo bucked the trend with a good result but the prevailing feeling among fund managers is that US bank earnings forecasts for 2012 are simply too ambitious. CNBC noted this morning, for example, that Goldman Sachs, which reports tonight, posted US$4ps in 2011 but is guiding to US$11ps in 2012, prompting the question: from where?
The good news in Europe had the euro up a bit last night, sending the US dollar index down 0.4% to 81.16. The Aussie saw a half-cent kicker from the Chinese data to be at US$1.0367. The lower US dollar helped gold up US$8.50 to US$1651.30/oz.
The SPI Overnight managed only a 5 point gain, bearing in mind that the China effect was all in yesterday's trade.
Have we all been worried for nothing, looking at such positive news out of Asia and Europe? Not necessarily – Greece remains the key. Until the Greek issue is sorted – and I mean SORTED – stock markets are simply not going to be overly optimistic.
Today sees BHP Billiton ((BHP)) and OZ Minerals ((OZL)) providing production reports while Westpac will provide its monthly consumer confidence survey.
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