Daily Market Reports | Nov 22 2013
By Greg Peel
The Dow rose 109 points or 0.7% to 16,009 while the S&P gained 0.8% to 1795 and the Nasdaq jumped 1.1%.
Glenn Stevens has the power, it would seem. Or might we say, “Don’t fight the RBA”? Yesterday the RBA governor told anyone prepared to listen that the Aussie is too high, indeed, “above its longer run equilibrium”, and threatening the capacity for the Australian economy to rebalance. The Aussie is down a cent.
Or was it HSBC’s flash estimate of China’s November manufacturing PMI, which showed a dip to 50.4 from a seven-month high 50.9 in October? Or was it an extension of Wednesday’s fall, which was driven by more Fed taper-talk (and hence a US dollar rally)?
Perhaps a combination of all three. The Aussie is the “China proxy”, movements in the US dollar mathematically reduce the exchange rate, and no one likes to fight a central bank. Yet Stevens has been banging on about a too-strong Aussie for a while now, and no one disagrees the strong currency is bad for the economy. The BoJ doesn’t like a too-strong currency either, so it is printing money. Nor does the ECB like a too-strong currency, so it has cut its cash rate and is thinking about printing money. And despite the typical, patriotic cry of “a strong dollar is good for America”, the Fed is happy to keep the greenback pinned down for as long as it takes.
How does the Aussie thus ever go down?
Easy. We want China to be strong, but if the Fed starts tapering the greenback will rise and the Aussie will fall, irrespective of China. Bring it on.
The explanation for the rally on Wall Street last night was largely one of a market “becoming more relaxed about tapering”. The taper debate will rage on through to the December 18 FOMC meeting and, when nothing happens, into the New Year. Meanwhile, Wall Street liked the fall in weekly jobless claims, announced last night, liked the fact the October PPI fell 0.2%, suggesting a lack of any inflation issue, and liked the flash estimate of November manufacturing PMI, which jumped to a better than expected 54.3 from 51.8 in October.
Never mind that the employment component of that PMI eased to 52.2 from 52.7, or that the Philadelphia Fed manufacturing index crashed to 6.5 from 19.8 last month when economists had expected 14.5.
The greenback actually didn’t move last night. The US dollar index is steady at 81.03 yet the Aussie is down 1.2% to US$0.9228.
Gold fell another US$5.20 to US$1243.80/oz and base metals were again mixed and boring, although copper did almost rise 1%. Spot iron ore fell US10c to US$136.30/t.
Following on from the Supreme Ayatollah’s rant on Wednesday, last night a senior oil analyst at the International Energy Agency warned, “Despite the recent signs that a diplomatic breakthrough with Iran might occur, this track is likely to be a long and precariously winding road”. It was enough to spark short covering in oil futures, with Brent leaping US$2.38 to US$110.32/bbl and West Texas rising US$1.35 to US$95.20/bbl on the new January delivery front month.
This bounce might be reflected in energy stocks on Bridge Street today, after this week’s sogginess. Indeed, the conquering of 16,000 on Wall Street has suggested, via the SPI futures at least, that the buyers will be back today. The SPI Overnight closed up 37 points or 0.7%.
Then again it is a Friday, which tends to suggest a strong open followed by lunch and afternoon disinterest.
Yes, the Dow has conquered 16,000 – just – for the first time. It was only in May the thirty-stock average first passed 15,000 and March when it reached 14,000, which was roughly the 2007 high. What the hell, they’re just numbers.
The S&P stopped short of 1800 nevertheless but may get there soon. Wall Street is split between those warning of PEs now starting to look ambitious and those suggesting whenever there’s QE, there’s plenty left.
David Jones ((DJS)) leads out another busy day of AGMs from mostly mid-cap names today.
There are no US data releases of note tonight but there will be a lot crammed into early next week ahead of Thursday, when Americans give thanks.
All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit. Click here. (Subscribers can access prices in the Cockpit.)
(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)
All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.
