Daily Market Reports | Jun 24 2013
By Greg Peel
The S&P 500 rocked and rolled on Friday, crossing the flatline several times. It was a typical consolidation session after Thursday night’s big fall, but also reflected the push and pull of the quadruple witching expiry. The Dow closed up 41 points, or 0.3% and the S&P rose 0.3% to 1592. The Nasdaq fell 0.2% following a weak quarterly earnings report from Oracle, which sent its shares down over 9%.
Helping to arrest the post-tapering announcement slide was an article from the Wall Street Journal’s man of the moment, Jon Hilsenrath, who suggested Wall Street was overlooking the dovish signals within the Fed rhetoric. An increase in the Fed funds rate is not expected until 2015, but increases will be gradual, Bernanke suggested, and the rate could stay at zero for longer.
Commentators have suggested the tapering of QE is not what the market most fears or is responding to. It is the threat of rising interest rates at a time the US economic recovery remains fragile. Despite not even being contemplated for two years, potential rate hikes have sent the US bond market crashing. The ten-year yield jumped again on Friday, rising another ten basis points to 2.51%. Some consider 2.5% to be a bit of a line in the sand at which the S&P 500 looks less attractive.
So rapid has been the panic exit from US Treasuries that some funds have been forced to freeze redemptions, just as stock funds froze redemptions in 2008. It is assumed, nevertheless that the bond slide is a typical knee-jerk, panicked reaction and that once things calm down, yields will drift lower once more.
There was also more Fedspeak on Friday, with St Louis Fed president James Bullard piping up. Bullard was the only FOMC member to vote against the taper timeline, suggesting more tangible signs of economic improvement were needed and inflation had to stop falling before a wind-back of policy could be justified.
Between Hilsenrath and Bullard we can see a glimpse of the truth of current Fed policy, and that is that it hasn’t actually changed. Earlier in the year, Bernanke suggested that bond purchases could be increased or decreased as needed, depending how the economic recovery played out. Earlier in the year, sugar-addicted traders saw only the word “increased” and pushed the S&P 500 to a new all-time high. Now that Benrnanke has suggested a possible timeline for the “decreased” side, the sugar addicts have panicked. Many believe this is exactly what Bernanke was trying to achieve through first his hints, then his timeline for tapering – to let some air out of the over-inflated asset price bubble.
Otherwise, nothing has been set in stone. A timeline has been suggested, Wall Street has been shaken out of its blind euphoria, and from here on in economic data and corporate earnings will call the tune, as they should.
The US dollar continued its rise on Friday night, adding another 0.7% on its index to 82.39. Despite the dollar rally, gold was able to snap back somewhat from its huge Thursday night fall, recovering by US$17.90 to US$1295.70/oz. The Aussie also stabilised, rising 0.4% to US$0.9237.
The same was true for base metals, which fell initially in London before technical signals set off a snap-back rally for some of the group. Copper and zinc rose 1% and nickel and tin rose 3%. The same was not rue for the oils, nevertheless, with Brent falling another US$1.00 to US$100.91/bbl and West Texas losing US$1.19 to US$93.69/bbl.
Spot iron ore fell $2.00 to $118.60/t.
The Australian market is a difficult call at present. Bridge Street fell heavily ahead of Wall Street on Thursday, and on Friday fell initially before bouncing back. It seemed Bridge Street did not need to be sold twice on the same news, with yield stocks back at attractive levels. But the SPI Overnight closed down 33 points, or 0.7% on Friday night despite a steadier Wall Street.
If the US wants economic data to mull over, there’s plenty due this week. Tonight sees the Chicago Fed national activity index and tomorrow brings the Case-Shiller and FHFA house price indices, new home sales, durable goods, consumer confidence and the Richmond Fed index. On Wednesday the US March quarter GDP will be revised for the last time ahead of the first June quarter estimate, with economists expecting no change to the 2.4% annual growth figure.
On Thursday it’s pending home sales and personal income and spending, while Friday wraps up with the Chicago PMI and fortnightly consumer sentiment measure.
Tonight Germany’s IFO business sentiment index is released, and on Thursday the UK posts its final revision of first quarter GDP. China releases May industrial profits on Thursday, while Japan delivers a data dump on Friday of manufacturing, production, sales, unemployment and inflation data. The world will be looking for any sign the BoJ’s new policy is managing to turn around Japan’s sliding CPI.
It’s a quiet week in Australia economically, with Friday’s private sector credit data the highlight. There are quite a few stocks going ex-div today although most are smaller caps, while Metcash ((MTS)) will report its full-year earnings. Thursday is stock option expiry.
Rudi will appear on Sky Business today at 11.15am, Wednesday at 5.30pm and Thursday at noon.
For further global economic release dates and local company events please refer to the FNArena Calendar.
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