Daily Market Reports | Jul 09 2013
By Greg Peel
The Dow closed up 88 points, or 0.6%, while the S&P gained 0.5% to 1640 and the Nasdaq added 0.2%.
Ahead of yesterday’s trade on Bridge Street the impact of strong US jobs numbers had been felt as a surging US dollar sent both the Aussie dollar and base metal prices tumbling. Last week a lower Aussie was enough to trigger significant offshore selling, and in isolation lower metal prices are never good for the materials sector. The materials sector responded as expected, but as the session ended it was clear any offshore selling impact was not as significant as we had become used to this month.
Weakness may have been aided by another poor ANZ job ads series reading. Yet despite the close correlation between job ads and the unemployment data over several years, the last few months have featured divergence, leaving economists scratching their heads. Fewer job ads should imply job losses, but to date that implication is yet to show up in the unemployment rate. The June jobs numbers are due on Thursday.
Global trading returned somewhat to normal last night after the unofficial four-day long weekend in the US. The response to Friday’s healthy US job numbers had been sharp in thin markets, with the greenback and US bond yields in particular spiking. There were no US data releases of any great importance last night, and while stocks continued their upward trend, the dollar, yields and metal prices all corrected to a reasonable degree.
The US dollar index fell back 0.3% to 84.21. The Aussie rose 0.8% to US$0.9135 and gold rebounded US$13.90 to US$1236.90/oz. The yield on the US ten-year bond, which shot up over 20 basis points on Friday night, fell back 7bps to 2.65%.
On Friday night amongst thin trade on the LME the decision was to sell base metals on the back of the stronger US dollar. But the US dollar was stronger on the implication of a stronger US economy, so in a busier market last night metal prices rebounded. Copper and nickel rose 1% and the others rose 2%. LME traders now have their eyes firmly on today’s inflation and tomorrow’s trade data out of China.
By rights the oils should have gone the same way as the metals on Friday, but Egypt and the potential threat of Suez Canal disruption ensured prices spiked up. Last night both crudes drifted off slightly, with Brent down US48c to US$107.24/bbl and West Texas down US37c to US$102.85/bbl. The situation in Egypt remains volatile.
Spot iron ore fell US70c to US$121.90/t.
Wall Street’s response to the strong US jobs number on Friday was initially to sell, on the old “good news is bad news theme” with respect to QE and the tapering thereof. But more recently investors have preferred to “normalise” their responses and decide that if the Fed starts easing back the sugar pills because the US economy is recovering, then that can only be a good thing. Stocks thus finished higher on the session, and continued higher last night to a peak of 127 Dow points. The indices drifted off to the close as attention now turns to the June quarter earnings result season.
Alcoa (Dow) reported after the bell and unofficially sounded the earnings season charge. Alcoa is not the bellwether indicator of the season it once was but posted a slight beat on both the top and bottom lines nevertheless, for a benign response. Realistically the season begins in earnest on Friday when the banks begin to report, led out by JP Morgan (Dow) and Wells Fargo, and a relatively quiet week data-wise may suggest and easing up of recent volatility as the week progresses towards those releases.
The data release highlight of last night came from Germany, where May industrial production showed a 1.0% fall when 0.5% was expected and exports fell 2.4% when a flat reading was expected. So what does the DAX do? It jumps 2%.
Economists put the weak IP number down to monthly volatility, given the April reading had seen a jump of 2.0%, while weak exports are largely reflective of weak demand from fellow eurozone members. Eurozone weakness suggests the ECB might pump up the stimulus sooner rather than later, so basically we have a “bad news is good news” theme now playing out in Europe.
After Europe’s stock markets had closed last night, the troika approved Greece’s next tranche of bail-out funds. The troika suggested that improvements were moving too slowly, but did not see reason to withhold. It’s a pleasant change from past tranche payment decisions, which have often been delayed on demand for Greece to tighten its budget further, heated debates in parliament, mass protests, market volatility and so on.
Returning to Bridge Street, yesterday the market was weak on a weaker Aussie and a fall in metal prices, and last night the Aussie and metal prices rebounded. This should suggest a reversal today, and indeed the SPI Overnight is up 26 points, or 0.5%.
That said, we will see Chinese inflation data for June today and NAB will release its local June business conditions and confidence survey.
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