Daily Market Reports | Sep 24 2012
By Greg Peel
Spain was the focus of attention on Friday night and over the weekend as the will it/won't it question of a bail-out request continues to dominate. Last week it appeared that Madrid may hold off on making the request as long as bond rates remained reasonable, but there has been much work going on in the background between Madrid and the ECB. It would now appear a very controlled Spanish bail-out is on the cards.
On Thursday Spain will announce a new budget that will feature further austerity measures in the form of pension freezes, tax increases and spending cuts. Had Madrid simply gone cap in hand to the troika the government would have had to cop whatever strict austerity measures would be imposed as the trade-off. They would no doubt have been unpopular, and no government likes to be unpopular. The new budget is not likely to win a lot of votes either, but at least Madrid has been able to negotiate the terms rather than simply have them imposed. It is likely the Rajoy government was preparing for a bail-out all along, but there is still a possibility the new budget might prove sufficient to avoid one.
Thursday's budget announcement will be followed on Friday with the results of stress tests on Spain's banks, conducted to determine just what direct injection of capital is needed to rescue the banking sector. An earlier estimate stood at E60bn and that figure is still being touted as the likely result on Friday, although outside evaluation has suggested up to E100bn.
Just to complicate the issue in Spain, the Catalan parliament will this week debate a move to greater sovereignty as local anger grows with regards to further austerity measures being placed on the region providing the greatest contribution to government income for a disproportionate cut of the regional distribution.
The question for global markets at this point is, however, does it really matter whether Spain asks for a bail-out or not? If a new budget means a bail-out can be avoided, that's good. If a bail-out is needed, the ECB has already pledged to keep bond rates low. It seems pretty much the same result either way, and meanwhile the Fed printing press is now in perpetual motion.
Quadruple witching expiries led to higher volume levels on Wall Street on Friday, but did not much impact on direction. The Dow lost 17 points, or 0.1% by the close, while the S&P was flat at 1460 and the Nasdaq gained 0.1% as the iPhone5 went on sale across the world. Apple shares crossed the US$700 mark. I myself happened to walk past the Apple store on George St on Friday and the queue did indeed disappear round the corner and down the street.
The news from Spain had the euro a little stronger on Friday night, sending the US dollar index down a touch to 79.35. The Aussie has thus gained 0.2% to US$1.046 and gold rose US$4.30 to US$1773.00/oz.
Commodities were also a bit stronger on Friday, with base metals all up around 1% and oil, after its big plunge last week, also rebounding somewhat. Brent was up US$1.14 to US$111.59/bbl and West Texas was up US54c to US$92.96/bbl.
The SPI Overnight closed down one point.
As we move into this week the focus will remain on Spain towards the end of the week, but Friday is also the last trading day of the third quarter, suggesting the potential for the usual fund manager argy-bargy in the run-up. After a positive quarter there will be some profits to be locked in, but with most funds underweight equities, there is room for late buying in order to increase weightings on quarterly reports to unitholders, lest redemptions follow. In Australia, there's another big chunk of stocks going ex-dividend this week as well, with the bulk occurring today. Thursday will also see the expiry of September stock options which, again, can influence the market.
On the economic front it's a quiet week for Australia, the highlights being the RBA's Financial Stability Review due tomorrow and private sector credit on Friday.
It's a busier week in the US, featuring the Chicago national activity index tonight, followed tomorrow by consumer confidence, the Richmond Fed index and both the Case-Shiller and FHFA house price indices. On Wednesday, the last revision of the June quarter GDP will be made (although June can again be revised on the release of the September first estimate), the Fed will release its Beige Book, and new home sales will be noted. Thursday it's pending home sales and durable goods orders and Friday it's personal income and spending and the Chicago PMI.
China will also be the focus of attention this week – if it's not always – as the Shanghai index continues to slide. This tedious argument over who owns a rock is getting out of hand, and that's not comforting for a world concerned over the more important matter of Chinese economic growth or lack thereof. The Chinese industrial profit results for August are released on Thursday.
Rudi will appear on Sky Business at noon this Tuesday instead of his regular Thursday spot and on Friday, Rudi will appear on BRR Media's Friday Afternoon Round Table.
For further global economic release dates and local company events please refer to the FNArena Calendar.
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.
