Daily Market Reports | Aug 26 2013
By Greg Peel
Friday night saw the first day of the annual Fedfest at Jackson Hole, Wyoming, an occasion famous for Ben Bernanke disclosing new shifts in US monetary policy every year since 2010. Having announced QE2, QE2.5 and QE3 at Jackson Hole, Ben Bernanke may well have seen this year’s gathering as the obvious chance to confirm Fed intentions regarding the beginning of policy reversal. If only he had deigned to attend.
Bernanke had confirmed months back he would not attend Jackson Hole this year. Perhaps as the outgoing chairman he thought it best to let others take the spotlight. But while debate rages as to whether President Obama will choose vice-chair Janet Yellen or former Treasury secretary Larry Summers as Bernanke’s successor, it came down to the Atlanta and St Louis Fed presidents to take the spotlight with regard to the question of tapering.
Dennis Lockhart said he would support a first reduction in Fed bond purchases as early as September, but only if the data between now and then confirm such a move is warranted. James Bullard suggested there is no reason to hurry.
This dampening of early tapering expectations was quite timely given the economic data release of the day – new home sales – sparked a sharp sell-off early in the session. New home sales were expected to fall to 485,000 in July from 497,000 in June, but instead fell 13.4% to 394,000. And June’s number was revised down to 455,000. This data point is often volatile, and sales are still up 6.8% year on year, but a clear weakening of US housing recovery momentum, assumed to be a fallout from rising mortgage rates, may have been enough to ensure a weak finish for the week on Wall Street. Ultimately the Dow closed up 46 points or 0.3%, the S&P rose 0.4% to 1663 and the Nasdaq added 0.7%.
After a couple of weeks of net weakness, it seems we’re back at more of a Goldilocks situation in which both good economic news and bad economic news are positive for the stock market. The September Fed meeting is not until the eighteenth, and the fundamental economic data point – the August jobs number — is reported on the sixth.
The positive session on Wall Street on Friday was assisted by an 8bps fall in the US ten-year bond yield to 2.81%. A lot of the weakness in stocks over the last couple of weeks can be directly tied to weakness in bonds, sending the ten-year yield on a rapid path to a psychological 3%.
The US dollar also fell, by 0.2% on its index to 81.37. The Aussie has responded in kind with a 0.2% gain to US$0.9029. Gold traders decided the home sales data and Jackson Hole commentary add up to tapering later rather than sooner, and gold shot up US$22.40 to US$1397.80/oz.
Base metals were mostly stronger by just under 1%, but the oils were notably stronger. For the oils it’s not just about the US economy or US data, but about the now real possibility of US and allied intervention in Syria. If this comes to pass the next consideration is how Syria’s closest ally, Iran, might respond. Brent rose US$1.14 to US$111.04/bbl and West Texas gained US$1.29 to US$106.42/bbl.
Spot iron ore rose US90c to US$138.60/t.
After a solid one percent gain on Bridge Street on Friday, the SPI Overnight was up 22 points or 0.4%.
There will be plenty of fodder this week in the form of US economic data for the tapering speculators to chew over. Tonight sees durable goods orders and tomorrow it’s the Case-Shiller house price index, Conference Board consumer confidence and the Richmond Fed manufacturing index. On Wednesday it’s pending home sales and on Thursday the US June quarter GDP result will be revised, with economists expecting an increase to 2.3% growth from the initial estimate of 1.7%. Friday wraps up with the Chicago PMI, personal income and spending and the Michigan Uni fortnightly consumer sentiment measure.
Japanese data will be in the frame this week with retail sales due on Thursday, followed by manufacturing, industrial production, unemployment and the all-important CPI on Friday.
The UK is closed tonight for a public holiday, hence no base metals trading on the LME.
Australia’s June quarter GDP will be released on September 4 and ahead of that we see the quarterly constituents released from this week. On Wednesday it's construction work done and on Thursday private capital expenditure, along with monthly new homes sales.
And the result season will roll on this week, being the last frenetic hurrah for the bulk of major index stocks. The season continues into September but aside from a couple of larger cap laggards, small caps will dominate after this week.
As at Thursday, 149 companies under FNArena database coverage had reported, marking 26% beats and 19% misses for a 1.36 beat/miss ratio. See the FNArena Reporting Season Monitor.
There are too many stocks reporting this week from which to pick highlights. Please refer to the FNArena calendar (link below).
Rudi will appear on Sky Business today at 11.15pm, Wednesday at 5.30pm, Thursday at noon and again between 7-8pm for the Switzer Report.
For further global economic release dates and local company events please refer to the FNArena Calendar.
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