Daily Market Reports | Apr 26 2013
By Greg Peel
On Wednesday night the Dow fell 43 points, or 0.3%, while the S&P was flat at 1578 and the Nasdaq was also flat. Last night The Dow rose 24 points, or 0.2%, while the S&P gained 0.4% to 1585 and the Nasdaq added 0.6%.
The highlights for Wednesday night on Wall Street were mixed earnings results among the Dow components, with AT&T and Proctor & Gamble posting weaker than expected reports, while Boeing flew high. March new durable goods orders saw a fall of 5.7% when a fall of 2.3% was expected.
One would normally expect weak durable goods numbers to weigh on commodity prices, but commodity traders have now built up substantial short positions. There was some bargain hunting underway on Wednesday that sparked a minor short-covering rally, sending most base metals up 1-2% and copper up 2.7%. Brent crude rose US$1.56 to US$101.86/bbl and West Texas jumped US$2.54 to US$91.72.
Commentators suggest further short-covering may be on the cards, but the trend for commodity prices remains down.
Gold also enjoyed further gains on Wednesday, rising US$16.90 to US$1431.50/oz despite the US dollar index falling only 0.1% to 82.93. The Aussie was again steady at US$1.0280.
The SPI Overnight rose 10 points, or 0.2%.
Earnings reports were again on focus last night, with weak reports from Dow components Exxon and 3M and a strong report from Verizon the highlights. Wall Street was buoyed, nevertheless, by a 16,000 fall in weekly new jobless claims. Around 2pm the Dow was up 92 points, despite suggestions the jobless claim numbers were distorted by the Easter break.
Those commentators were right about base metals, with even more solid gains posted last night on reputed Chinese short-covering. Metals rose 1.5-2% with copper adding another 2.8%. Helping the bounce on the LME was the release of the first estimate of the UK’s March quarter GDP, which came in at 0.3% growth when only 0.1% was forecast. Had the result been negative, the UK would have officially fallen into a triple-dip recession, hence relief greeted the positive read.
The oils were also boosted once more by the UK GDP, with Brent up US$1.55 to US$103.41/bbl and West Texas up US$1.94 to US$93.37/bbl.
Spot iron ore has bucked the trend, falling US$2.90 to US$135.10/t on Wednesday and US50c to US$134.60/t yesterday.
Gold has been grafting back steadily after its huge plunge last week, but momentum really picked up last night, with the precious metal rising US$33.90 to US$1465.40/oz to mark its largest single day gain of 2013. Helping gold along is speculation the ECB will cut its cash rate at the next meeting in light of weak European data. The UK GDP result pushed up the pound and sent the US dollar index down 0.2% to 82.78. The Aussie is slightly higher at US$1.0291.
The UK GDP result was also a fillip for Wall Street, which saw the Dow up by as much as 92 points by around 2pm. All looked rosy until Jens Weidmann, president of Germany’s central bank, sent what was supposed to be a confidential letter to the German Constitutional Court criticising the ECB’s outright monetary transactions (OMT) model, suggesting it undermined individual central banks and sovereignty. The OMT is the plan Mario Draghi cooked up in preparation to bail out Spain as soon as Spain asked, but so far Spain hasn’t asked. With European economic data drifting rather than improving, commentators suggest it’s only a matter of time before someone, Spain or otherwise, triggers OMT deployment.
Weidmann’s letter somewhat took the wind out of Wall Street’s sails, and the indices backed off towards the close. The SPI Overnight closed up 12 points, or 0.2%.
The big surge on Bridge Street on Wednesday, which saw the ASX 200 up 1.7%, was aided by the weaker than expected March quarter CPI result. Headline inflation showed a 0.4% gain for the quarter to mark 2.5% growth for the year when 0.6% and 2.8% were expected. The RBA had been forecasting headline inflation to hit 3.0% by the end of the June quarter, which now looks very unlikely.
What this means, of course, is that rate cut speculation is well and truly back on the cards. Only a month ago the market had all but given up on a rate cut and had started to worry about a rate hike later in the year. Hopes are now up for a cut in May, although some economists are suggesting the RBA might wait till the June meeting at which point important March quarter GDP component data will have flowed in.
The dilemma for the central bank is not one of wage-price inflation, which appears contained, but of asset price inflation – the stock market for one, but particularly the rekindling of house price rises. Were the RBA to cut below 3% it would represent a cut to below the “emergency” rate set at the depths of the one of the world’s greatest financial crises, the GFC.
Despite the big jump on Wednesday, there’s little reason not to expect further gains today given strong sessions in gold, base metals and energy over two nights. Iron ore is the downer nevertheless, falling a net US$3.40 fall across the Anzac break.
Trading will likely be thin today, however, given the likelihood many will have opted to turn a one-day holiday into a four-day long weekend in the middle of school holidays. The market may well be quiet. Wednesday’s solid jump had a hint of getting positions on before the break.
ResMed ((RMD)) will release its quarterly earnings report in the US tonight while the first estimate of US March quarter GDP will also be in the frame. Annualised growth of 3.0% is expected.
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