Daily Market Reports | Mar 06 2014
By Greg Peel
The Dow closed down 35 points or 0.2% while the S&P was flat at 1873 and the Nasdaq rose 0.2%.
Bridge Street followed the global trend yesterday in rising from the bell on news of easing in tensions in the Ukraine. The local index never actually fell on the escalation in the first place, unlike other major centres, so it was down to local economic data to provide the real impetus to push higher over the session.
Australia’s December quarter GDP grew by 0.8% quarter on quarter for an annual rate of 2.8%. These numbers are a tick above consensus estimates of 0.7% and 2.7% respectively. The level is still below trend, and indeed growth of 2.8% over the year 2013 was at the low end of the range of the past few years, notwithstanding the headwind of a 2.0% fall in public spending which represented the first decline in, believe it or not, sixty years. A private sector inventory run-down also fought against growth.
The good news is we have now marked the 22nd year of consecutive growth. The bad news is that while the peak of mining spending was evident in the data, the beginnings of a transition away from mining were not. Spending on new dwellings and non-mining capex both fell in the December quarter.
But that was last year. We are already into the last month of the March quarter and the leading indicators have started to suggest improvement, the CBA economists note. Building approvals and commercial finance commitments are rising, while the December quarter provided a glimpse at the solid export numbers that will flow from the mining sector shifting into the production phase.
Aside from the GDP result, yesterday also brought Australia’s February service sector PMI. Are you sitting down? It leapt to 55.2 from 49.3 in January. That’s the first indication of expansion since January 2012, and healthy expansion at that, and the strongest result since March 2008. The main drivers were health and community services and finance and insurance.
Australia’s PMIs are always a lot more volatile than those of other developed economies (is it a population thing?) so we might see a tumble in March. But if the number can hold over 50 then we would have another indicator the non-mining recovery has begun.
HSBC’s services PMI for China rose to 51.0 from 50.7, and the eurozone saw a rise to 51.6 from 51.0. The UK continues to win the race, given a fall to 58.0 from 58.3 still suggests rapid expansion. The US saw a fall to 51.6 from 54.0. This was quite disappointing, but quickly blamed on the weather.
And if you’re thinking that the snow excuse seems a bit of a stretch for the service sector, it must be noted that while other centres (Australia included) publish separate construction sector PMIs, the US construction sector is a subset of the US services sector. So snow makes sense.
Speaking of snow, this month’s Fed Beige Book – an anecdotal assessment of economic activity in each of the twelve Fed regions — could have been written by the Department of Meteorology as well. It was a shocker, but even the Fed was quick to admit a true interpretation is difficult given the weather impact.
And then there’s the all-important jobs numbers. No one in the US knows what to forecast right now, and no one knows how to respond to the result. The official non-farm payrolls number is due on Friday night but last night saw the ADP private sector result for February. The private sector added 139,000 jobs, which was better than January’s 127,000, but well down from last year’s milder February, when 205,000 jobs were added.
So the US stock indices chopped around going nowhere much last night. After the big rally on Tuesday night and the nominally weak data flow, there was little reason to buy with any enthusiasm. The snow provides a good reason not to sell enthusiastically either.
The US dollar index was steady at 80.12, US bond markets were steady and gold was up a whisker to US$1339.00/oz. The strong local data lifted the Aussie 0.4% to US$0.8985.
Having surged in Tuesday night’s trade, last night base metals were mostly a little weaker. The oils continued to wipe out their Ukraine premium and a jump in weekly inventories in the US added to the mix to send Brent down US$1.33 to US$107.84/bbl and West Texas down US$2.23 to US$101.10/bbl.
Spot iron ore fell US10c to US$116.70/t.
The SPI Overnight fell 12 points or 0.2%.
The January trade balance and retail sales numbers are out in Australia today while tonight the ECB and Bank of England both hold policy meetings which are not expected to produce any policy changes.
Rudi will appear on Sky Business at noon and again on Switzer TV with guest host Marty tonight between 7-8pm.
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