Daily Market Reports | Sep 17 2013
By Greg Peel
The Dow rose 118 points or 0.8% while the S&P gained 0.6% to 1697 with the Nasdaq easing 0.3%.
Bridge Street had a strong session yesterday which was largely a pre-emptive response to expectations of how Wall Street would react last night. The weekend news included the signing of an agreement between the US and Russia that the US would not strike the Assad regime if Russia succeeded in quarantining Syrian stockpiles of chemical weapons, and the withdrawal by former Treasury Secretary Larry Summers of his candidacy for new Fed chairman.
While President Obama insisted a strike will still be very much on the cards if Assad fails to sufficiently comply, Wall Street has decided the issue is dead for now. Iran is laughing, Israel is angry, but America just doesn’t care.
With the withdrawal of Summers the assumption is vice-chair Janet Yellen will be announced as the anointed one. Summers is seen as hawkish and anti-stimulus as well as abrasive in character, while Yellen’s views more align with the measured approach of outgoing chair Ben Bernanke. Taking Summers out of the equation eases Wall Street fears of too-fast tapering at a time US economic data remain less than convincing. Markets expect tapering to be announced on Wednesday, but only by increment.
The initial response to the Summers news was a sharp dip in the US dollar in yesterday’s Asian session, but US traders soon tempered the falls once they were on deck. The US dollar index is 0.3% lower at 81.28 on the basis of a gradual, rather than sharp, reduction in money printing ahead. By rights one should thus expect a rise in the gold price, but instead gold fell US$18.30 to US$1309.60/oz. Whether fast or slow, tapering is now being assumed by the gold market as a given.
The Aussie reacted as might be expected, rising 0.8% to US$0.9319. Emerging market currencies which have been severely beaten down of late on the expectation of a flight of investment capital and a US dollar rise also enjoyed a respite bounce. US stock markets responded pretty much as Bridge Street had assumed yesterday, although US bond markets were less excitable, with the ten-year yield only falling 2bps to 2.86%.
Initial enthusiasm in stock markets did not, nevertheless, carry through to the close. The Dow peaked at up 173 before settling up 118 and the S&P 500 reached as high as 1704 before settling at 1697. At its peak, the broad market index was in sight of the 1709 all-time high, which may explain some of the selling. The S&P would have pushed higher were it not for Apple, which has been trashed since the disappointing iPhone 5S release and last night dragged down the Nasdaq.
There also was some US economic news last night, with July industrial production rising 0.4% as expected but the Empire State manufacturing index for September falling to 6.2 from 8.3 when a rise to 9.4 was expected.
Once again the question must be asked: Is the US really ready for tapering? The assumption is the Fed believes so, and has laid some lengthy groundwork to prepare Wall Street for the day. Again it just comes down to degree, which is where Yellen would be well-received in the post. She would not officially take over until 2014 but presumably Bernanke would stand back and play more of a lame duck role once the announcement is made.
Base metals continue to play a watch and wait game ahead of Wednesday night’s FOMC decision, going nowhere much last night in different directions. It was a different story for the oils, however, on the back of the US-Russia agreement on Syria. Brent, trading the new November delivery front month, fell US$2.07 to US$109.63/bbl and West Texas, which is still trading October, fell US$2.01 to US$106.20/bbl.
Spot iron ore fell US40c to US$134.10/t.
The futures market may well have been expecting a little more enthusiasm from Wall Street given yesterday’s 28 point gain in the physical, as the SPI Overnight closed down 17 points or 0.3%.
The minutes of the RBA’s September meeting will be released today which will be pored over for clues as to whether the central bank has now ended its easing stance, which some believe, or still sees “scope”, as others assume.
In the US, the market will closely watch the August CPI release in case a big move impacts on Fed thinking.
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