Daily Market Reports | Mar 27 2014
By Greg Peel
The Dow closed down 98 points or 0.6% while the S&P dropped 0.7% to 1852 and the Nasdaq fell 1.3%
Bridge Street had a solid run yesterday, spurred on by gains on Wall Street, some better looking commodities prices, an assumption China must stimulate soon, and even more (endless) chatter in Europe over some possible form of QE. Materials led the way but gains were booked across the board with the exception of IT.
Speaking of IT, the Nasdaq continues to be hammered in the US as traders exit what has been feared as the next “dotcom” bubble – not quite as spectacular as the run-up to 2000 but tech companies have been well sought after in the rally from mid last year and once again analysts have been scratching their heads as to why companies that make no money are valued so highly.
As for the broader US market, it just seems like no one is quite sure what to do at this point. Yellen has signalled that rate hikes could come sooner rather than later, economic data are turning positive again, PEs are stretched and Russia is an accident waiting to happen. Throw in the same China/Europe stimulus talk. It’s a mixed bag of “whereto from here?”.
New durable goods orders data for February were released last night, showing a net rise of 2.2% when economists had expected 0.0%. Taking out lumpy aircraft and auto orders left a rise of 0.2% but the critical measure of core capital goods orders fell for the fourth time in six months. So a mixed result there.
On the other hand, a flash estimate of the March service sector PMI predicted a rise to 55.5 from February’s 53.3. Despite the global obsession with manufacturing PMIs, the US service sector contributes about three quarters of GDP and a similar level of employment.
These data releases were enough to see the Dow up 99 points from the bell but Wall Street quickly began to run out of oxygen.
While markets have not quite called the Crimea situation done and dusted, there has been an air of indifference permeating even as more Russian troop movements suggest something more sinister and speculation has stretched as far as an ethnic Russian region of Moldova, to the west of Ukraine, as being another target for Putin’s new Soviet Union. Last night President Obama warned the world of “casual indifference” towards Russia and urged more economic sanctions, which was enough to refocus Wall Street on the possible ongoing threat.
Perhaps the US bond market is paying more attention. At lunchtime the US Treasury auctioned US$35bn of five-year bonds and was knocked over in the rush. Hang on – didn’t the Fed just hint at a forthcoming rise in interest rates? Bidders offered to buy 2.99x the amount on offer compared to a running average in recent months of 2.66x, and 50.9% was snapped up by “indirect bidders” compared to an average of 42.7%. Indirect bidders include mostly foreign central banks and sovereign funds but in recent months more US money managers have entered the fray. The benchmark ten-year yield fell 3 basis points to 2.70%.
Wall Street pays close attention to the bond market because of the longstanding belief the bond market always knows what it is doing, whereas the more widely understood and accessible stock market can be dominated by headless chooks. And so it was US stock markets turned negative rather quickly in the afternoon in the wake of the bond auction.
On Tuesday night in London funds were buying metals on the talk of Chinese stimulus but last night they didn’t, so in subdued trading all base metals, including copper, fell back around 1%. Spot iron ore managed a US10c gain to US$111.90/t.
It’s not shaping up well for Bridge Street today. Yesterday RBA officials were out and about making speeches but there was no specific attempt made to “talk down” the Aussie dollar, as was expected. So what does the Aussie do when it’s on a roll at present? Rise another 0.7% to US$0.9226 and a significant 2014 high. Technical analysts believe there’s little stopping the currency before the 94 level.
The US dollar index was otherwise steady last night at 79.97. By rights if they’re buying US Treasuries they should be buying gold as well, but no. Gold fell US$8.70 to US$1303.60/oz after a brief foray under the 1300 mark which brought in some buying.
Brent crude was steady at US$106.92/bbl while West Texas was responding to domestic weekly inventory news in rising US$1.03 to US$100.22/bbl.
The SPI Overnight fell 33 points or 0.6%. Swings and roundabouts.
It’s individual stock option expiry day today on the ASX which could cause some individual volatility and Sigma Pharmaceutical ((SIP)) is due to release its interim result. Tonight sees another revision of the US December quarter GDP which is now a bit “old news” but can still prompt some market movement.
Rudi will appear on Sky Business at noon.
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