Daily Market Reports | Mar 18 2013
By Greg Peel
“Don’t panic”, Cypriotes were told over the weekend, but panic they did, withdrawing as much of their savings as possible from ATMs. No doubt tonight, when banks open across Cyprus, long queues will have already formed.
A potential run on Cypriote banks has been sparked by the decision at a meeting of eurozone finance ministers on Friday night in Europe to provide the tiny economy with an E10bn bail-out on the condition that all Cypriote bank deposits are levied by 6-10%. The levy has shocked the region, given previous bail-outs for Greece through to Italy have involved strict austerity and budget cut measures, but never a grab of personal savings. Even as one of the first bail-out recipients, Ireland, draws closer to paying back the funds it was granted soon after the GFC, financial markets are concerned runs on banks across the eurozone could transpire on fears of the precedent the Cyprus deal might set.
The euro has plunged over 1% against the US dollar in early trade this morning, and the Aussie has also taken a dive of over half a cent to around US$1.035. The Aussie closed up 0.4% to just over US$1.040 on Friday before the eurozone announcement.
Just when the world becomes complacent, Europe always pops up again to remind us it hasn’t gone away.
The Dow fell 25 points, or 0.2% on Friday night and closed ahead of the news regarding Cyprus. Despite heavy volume evoked by a quarterly “quadruple witching” derivative expiry, the US indices traded meekly in the red throughout the session. The fall brings to an end the Dow’s 10-day winning streak – a feat it has not performed since 1996. The more important S&P 500 fell 0.2% to 1560, failing intraday to reach the all-time closing high of 1565, which was only two points away on Thursday night’s close. The Nasdaq fell 0.3%.
Dow component JP Morgan fell 2% following the Fed’s decision posted after the bell on Thursday that the bank would not be allowed to pursue capital management until it reduced the disaster risks still present in its derivative books. Goldman Sachs managed a 0.5% gain despite being the other bank singled out, while a positive response to share buyback announcements from other large banks given a green light by the Fed balanced out the financial sector impact on the indices.
The weakness on Friday night was more of an eventual inevitability than it was prompted by any particular piece of news, and indeed Friday’s economic data releases were mostly positive. Industrial production rose 0.7% in January against an expectation of 0.4%. The headline CPI for February jumped 0.7% — its biggest jump since 2009 – on higher gasoline prices but the Fed’s core measure (ex-energy) rose only 0.2%. Inflation is thus not yet seen as threatening the Fed’s current easy policy stance. Consumer confidence as measured by Michigan Uni took a surprise tumble, but this was attributed to the aforementioned higher gasoline prices in the month.
The other news of note over the weekend came from China’s annual governmental gathering at which the new premier assured that the new government would pursue a growth policy and at this stage was not concerned by inflation. The sizeable jump in CPI inflation in February has led to concerns Beijing would be forced to tighten policy once more, returning China to the slowing trend we saw in 2011-12.
Base metal prices fell on Friday night by 0.5-1.5% despite what was up to that point a 0.5% fall in the US dollar index. Gold was as good as steady at US$1592.00/oz, but the oils rose on the weaker dollar, with Brent up US86c to US$108.96/bbl on the new May delivery month and West Texas (April) up US47c to US$93.45/bbl. The local market will be pleased today to see a rebound from iron ore’s recent drop, with the spot price rising US$1.70 on Friday to US$134.39/t.
The news from China may be comforting for iron ore prices, but Western-traded commodities will likely come under pressure tonight due to the Cyprus-led euro-plunge and subsequent rise in the US dollar.
The SPI Overnight closed down 23 points, or 0.5% on Friday, also ahead of the Cyprus news.
The news from Europe comes ahead of some important data releases for the region this week. Tonight sees the eurozone trade balance, Tuesday the ZEW investor sentiment survey, Thursday the flash manufacturing PMI and Friday the German IFO business sentiment survey.
Chinese property price data are released today and Thursday sees HSBC’s flash manufacturing PMI for March.
Another round of US housing data will roll out this week, beginning tonight with the housing sentiment index. Tuesday it's housing starts and Thursday existing home sales and the FHFA house price index along with the Philadelphia Fed manufacturing index and a flash measure of the March PMI.
The Fed will hold a policy meeting on Thursday, at which it will provide a quarterly update of economic forecasts. The policy statement will be accompanied by a quarterly press conference from Ben Bernanke. At this stage there seems little new the chairman can say.
Australia’s week begins with vehicle sales today and the minutes of the last RBA meeting on Tuesday. Money markets will, as usual, attempt to find further clues on rate cuts or lack thereof beyond those offered by the earlier statement. On Wednesday it's Westpac’s leading economic index along with a quarterly housing affordability measure from CBA.
Thursday will also see the expiry of March quarter index futures and options on the ASX, an event which can often trigger unusual volatility. Although the way the market is charging up and down at the moment, it would be difficult to call any volatility unusual.
David Jones ((DJS)) will post its interim profit result on Wednesday.
Rudi will not appear on Sky Business today at 11.15am (canceled due to Parliamentary grilling of local media executives), but he will appear on Market Moves Tuesday at 5.30pm and on Thursday at noon.
For further global economic release dates and local company events please refer to the FNArena Calendar.
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