Daily Market Reports | Feb 26 2014
By Greg Peel
The Dow closed down 27 points or 0.2% while S&P lost 0.1% to 1845 and the Nasdaq fell 0.2%.
Bridge Street tried to follow Wall Street up from the bell yesterday but struggled, particularly under the weight of a big drop in the spot iron ore price impacting on the big miners. Profit-taking helped the index drift lower to the close, but without any particular panic.
News from China that the People’s Bank drained CNY100bn out of the money market and will likely drain more unsettled the Shanghai market, along with news some of China’s major banks are now stepping back from loans to property developers. As I noted yesterday, the words “China” and “property” in the same sentence evokes nervousness.
Back downunder, with effectively three days to go now to the end of the local result season proper we can safely call the season as a positive one, with FNArena’s beat/miss ratio maintaining a consistent 3/2 average. But given the elevation of the market PE in 2013 we needed a positive season simply to justify prices, rather than elevate them further. We now seem to be hitting a “what next?” period at the previous highs when all we hear on the economic front is bad news. Aussie icons going under, job losses, the death of manufacturing, fiscal austerity to be thrust upon us… Good news rarely makes for good headlines though, it should be noted.
The US appears to be in a similar position at the end of its own result season. Last night the broad market S&P 500 failed to hold above 1850, which is seen as a technical failure at what would be a new all-time high. The weather debate is confusing the issue as a stream of disappointing economic data continues to foster doubt and keep a lid on the US dollar and US bond yields. Last night’s data releases featured more of the same.
The Case-Shiller 20-city house price index showed a 0.1% drop in December. The annual growth rate for 2013 of 13.4% represents the fastest pace since 2005 but a peak of 13.7% was reached in November, thus indicating an easing toward year-end. The FHFA price index of houses with Fannie/Freddie mortgages showed a 1.2% seasonally adjusted rise in the December quarter. It was the tenth consecutive quarterly gain but “more modest”, suggested FHFA, than previous quarters.
Whether or not snow impacted on December numbers is by the by. Since tapering talk began, US mortgage rates have risen. As prices have risen the past couple of years, so too has inventory for sale as sellers look to cash in. These factors would clearly slow the pace of price rises and besides, an easing in the pace is healthier than another runaway bubble.
The Richmond Fed manufacturing index plunged to minus 6 this month from plus 12 last month, in line with falls in neighbouring (New York, Philadelphia) Fed regions. These numbers have been blamed on snow.
There is nevertheless no snow factor in the fall in the Conference Board’s monthly consumer confidence measure to 78.1 from 79.4 in January when economists had forecast 80.1. The “current conditions” sub-measure improved, which all-up suggests Americans feel things are better now but are not likely to get much better still from here.
The US dollar index continues to go nowhere and was a tick down again last night to 80.16. The US ten-year yield fell 5 basis points to 2.70% but has been fairly static around that level for a while. Gold was US$5.00 higher at US$1342.90/oz while the Aussie has slipped back 0.2% to 90.14.
Base metal markets seem to be doing an awful lot of jumping up and down on the spot in 2014 without achieving a great deal. Last night saw moves of around half a percent across the spectrum, in either direction. But spot iron ore continued its recent slide, dropping another US90c to US$119.10/t.
Natural gas continues to be the big talking point in energy markets and after having shot up like a bullet to over US$6/mmbtu recently, last night’s 8% fall has taken the price just as quickly back to around US$5/mmbtu. While some movement in Australian energy stocks is attributed to daily US gas prices, it must be remembered US gas is a closed shop. The US does not (yet) export gas so price fluctuations are a domestic issue and it is pretty obvious what’s been happening in the US this winter. It’s been a tad chilly.
Oil prices fell last night nevertheless, with traders citing the abovementioned Chinese liquidity tightening as the cause. Brent dropped US$1.10 to US$109.50/bbl and West Texas fell US80c to US$102.02/bbl.
The SPI Overnight fell 9 points.
There’s a long list of companies reporting today in the local market, and we’ll also see data for December quarter construction work done, which may or may not prompt adjustments to economists’ forecasts of next week’s GDP result.
Rudi will appear on Sky Business at 5.30pm.
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