Daily Market Reports | Apr 15 2013
By Greg Peel
It was clearly a bad news day on Wall Street on Friday – the Dow closed flat. On any other day it would have risen. The flat close nevertheless required a 75 point recovery from the intraday low set early in the session. The S&P was a little more indicative of reality, falling 0.3% to 1588, while the Nasdaq dropped 0.2%.
The early selling was sparked by the day’s economic data releases. US retail sales were expected to fall 0.1% in March after rising 1.1% in February, but fell 0.4%, and Michigan Uni’s fortnightly measure of consumer sentiment fell to 72.3 from a previous 78.6 to mark the lowest reading in nine months. The producer price index fell 0.6% on the headline following a 3.4% drop in energy prices, albeit the core PPI rose 0.2%.
Falling energy prices are a double edged sword, being beneficial for consumers and the broad economy but not so pleasing for Wall Street’s significant energy sector, which includes the largest listed company, Exxon. Falling retail sales were blamed partly on poor weather, but also on the budget cuts and mandatory unpaid days off for government workers. The fall in sales growth was not a surprise, but the quantum was.
Biggest US bank JP Morgan reported a good beat on earnings as did biggest mortgage originator Wells Fargo, although both disappointed on revenues. The shares of both closed down on the day by less than one percent.
It was thus a typically defiant session for stocks, given plenty of excuse to tumble. Stocks don’t seem to want to tumble, but that’s not going to stop commodity prices.
Is it all over for gold? North Korea is threatening nuclear war, which should be bullish for gold. Rumours emerged on Friday that Cyprus may have to go back to the troika for more of a bail-out, which should be bullish for gold (later denied by the Cypriot government). Recent weak US data, such as jobs and retail sales, implies stronger for longer Fed QE, which should be bullish for gold. Japan has just begun a QE program even bigger than the Fed’s, which should be bullish for gold. On Friday night gold fell US$75.70 or 5% to US$1485.20/oz, its lowest level in close to two years. If you are technically inclined, gold is now officially in a bear market. Silver fell 6%.
It has to be said that pressure has been mounting for the supposed safe haven and monetary inflation hedge. Risks in Europe have not abated, yet no one much cares anymore. Despite relentless global monetary easing, there are no signs of inflation. Having peaked above US$1900/oz a year ago, gold has since struggled to re-establish upside momentum. The longer gold has failed to go up, and test at least the US$2000/oz mark that earlier was a consensus target, the more gold investors have been losing their resolve. In 2012, 279 tonnes worth of gold were bought by ETF investors. In 2013 to date, 202 tonnes have been sold.
Weaker US data might imply the Fed will not be easing back its quantitative easing program anytime soon, but the latest Fed minutes suggested the FOMC is seriously debating just when, and by what measure, it will begin to back off. Talk of the exit beginning as soon as the northern summer may seem ambitious given the apparent stumble in the US recovery, but the talk is still enough to unsettle the weaker gold longs. Whether or not Cyprus needs more of a bail-out, what it is doing is selling gold reserves. The Cypriot government let some go last week and has spoken of selling all excess reserves, to the tune of E400m worth. In reality, Cyprus could sell its gold to one of the many willing central bank buyers across the globe and not make any impact on the market, but again it is an unsettling thought for the nervous longs. But perhaps the most obvious reason gold chose Friday night to capitulate was the earlier forecast downgrade from mountain-mover Goldman Sachs.
Yep, the Bank That Rules The World is largely omnipotent, so when GS downgraded its 2013 forecast average price to US$1545 from US$1610 mid-week there was an initial sell-off, then a stall. You can bet your bottom dollar the Goldman proprietary desk has set itself short, and was prepared to keep nudging. On Friday, the dam broke.
GS aside, there have been net short positions building up in Comex gold futures for some time. If those shorts decide tonight to start taking profits, there could be a sharp short-covering rally. But if they largely decide gold has now opened up a technical chasm, they might hang in there.
The US dollar did not provide any impetus for gold’s demise on Friday. The dollar index fell 0.2% to 82.10 on the weak retail sales number as the dollar-yen backed a little further away from parity.
For “real” commodities, the recovery of the world’s largest economy is about all that’s been holding prices up of late, and the consumer provides the lion’s share of US GDP. Weak retail sales are thus not good news. They didn’t muck around on the LME, slapping all base metals down 2-3%. Brent crude fell US$1.09 to US$103.11/bbl, while West Texas was thumped down US$2.55 to US$90.60/bbl.
Spot iron ore rose US10c to US$141.00/t.
It is interesting that an apparent “big switch” on the Australian market, out of defensive yield and into cycle resources, lasted but one session last week, on Wednesday. Thursday and Friday saw a swift reversal back to the status quo. Smart move, given resource stocks will be under pressure today given the steep falls in base and precious metals. The Aussie has lost half a cent to US$1.0503.
The SPI Overnight fell 18 points, or 0.4%.
What will budge Wall Street? Economic data are being swiftly dismissed. This week is thick with major earnings reports, offering up plenty of potential.
Citigroup reports tonight, Yahoo reports on Tuesday along with Dow components Coca-Cola, Intel and Johnson & Johnson. American Express (Dow) and Bank of America (Dow) are due on Wednesday, Google, and Dow components IBM, Microsoft and Verizon on Thursday, and Dow components General Electric and McDonald’s on Friday.
Data-wise, for what it’s worth, the US will see the Empire State manufacturing index and housing market sentiment index tonight, the CPI, housing starts and industrial production on Tuesday, the Fed Beige Book on Wednesday and the Philadelphia manufacturing index on Thursday.
It’s a big day for Chinese economic data today with the release of monthly retail sales, industrial production and fixed asset investment numbers, but most importantly the March quarter GDP. Economists are looking for a tick up to 8.0% annualised growth from the December quarter’s 7.9%. Chinese property prices are due on Thursday.
In Australia, it’s housing finance and investment lending today, vehicle sales and the minutes of the April RBA meeting on Tuesday, the Westpac leading index on Wednesday and NAB’s March quarter business confidence summary on Thursday.
Rudi will appear on Sky Business today at 11.15am and on Thursday at noon.
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.
