Daily Market Reports | Mar 04 2014
By Greg Peel
The Dow closed down 153 points or 0.9% while the S&P lost 0.7% to 1845 and the Nasdaq fell 0.8%.
This report is not the medium to debate or speculate on the implications of Russia’s move into the Crimean peninsula as the mainstream media have every angle covered. Suffice to say, markets always fall on the threat of war and can fall sharply. If a war begins, markets usually bounce. This war, if that is what it is to be, will certainly have wider reaching global implications than, for example, the Libyan conflict. If nothing else it should be noted Europe imports the bulk of its energy needs from Russia. Any local altercation would have a minimal chance of intervention from NATO.
I did suggest yesterday that Friday’s session in the US offered up some surprises in the form of markets that didn’t move much when one might have expected so under the circumstances of growing tension. Suffice to say, oil, gold and US bonds all woke up last night. Stock markets tumbled around the clock.
It was a resilient performance locally given the ASX 200 was down over 50 points in the morning but closed down only 20. Japan fell 1.3%, Hong Kong 1.5%, London 1.5%, France 2.7% and Germany, which is heavily reliant on trade with Russia, 3.4%.
There were a lot of economic releases around the world last night which had to take a back seat to geopolitical concerns.
Australia’s manufacturing PMI rose to 48.6 in February from 46.7 in January. It’s an improvement but still in contraction indicative of the slowly dying sector. HSBC’s China PMI fell to 48.5 from 49.5. The eurozone fell to 53.2 from 54.0 but this was not as much as expected, is still expansionary, and featured the first slowing of contraction in France for seven months. The US surged to 57.1 from 56.7.
In Australia, the negative trend in the ANZ jobs ads series reversed last month with a 5.1% jump following a flat result in January, suggesting fears of spiralling unemployment may be overblown. New home sales rose 0.5% in January after falling in December. The Rismark-RP Data house price index showed 0.0% change last month after eight consecutive months of gains, perhaps allaying some bubble fears. And the TD Securities inflation gauge suggested a headline CPI rate of 2.7%, up from 2.5% last month.
Add that all up and we can see firstly why the ASX200 arrested its slide at midday yesterday and why the Aussie is dead steady over 24 hours at US$0.8927 when the war factor might have sent it tumbling. The RBA will meet today and leave rates on hold, but once again the talk is of when the first rate rise might be.
In the US, consumer spending rose 0.4% in January when 0.2% was expected. Despite this largely reflecting heating costs in the particularly cold winter, economists were pleased. Indeed, along with the PMI we would otherwise have expected Wall Street to kick on strongly last night, and the same could be said for Australia yesterday.
But that is not the case, although the Dow was down 250 points at its depths last night before also staging a comeback. The US dollar index rose 0.4% to 80.90 having fallen sharply on Friday. The US ten-year bond yield fell 5 basis points to 2.61% in one safe haven trade, and gold rose US$26.50 to US$1351.90/oz in the other safe haven trade.
Oil traders were clearly asleep on Friday given last night Brent crude jumped US$2.38 to US$111.20/bbl and West Texas rose US$2.09 to US$104.68/bbl.
Base metal prices fell but not dramatically so, other than a 1.7% drop in aluminium which has little to do with Mister Putin. Similarly, iron ore fell US40c to US$117.70/t.
The SPI Overnight fell 14 points, suggesting a lack of real panic.
We must now let the diplomacy run its course.
Australia’s December quarter current account and terms of trade are out today, along with January building approvals. The RBA will also hold a policy meeting as noted.
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