Daily Market Reports | Mar 28 2014
By Greg Peel
The Dow fell 4 points while the S&P lost 0.2% to 1849 as the Nasdaq dropped 0.6%.
Bridge Street tanked on the open yesterday, prompting the question of what the hell was going on with Wednesday’s 40 point rally. If that was based on the hope of Chinese stimulus, then it’s not doing the currency any good. Perhaps yesterday the realisation sunk in. The iron ore price, for example, has steadied, but iron ore stocks were weak yesterday and that’s all about a rising Aussie.
The banks held up of course, and in the end what looked like an index rout became less so as the afternoon wore on. At the end of the day, yield will support. But if anything is clear it’s that nothing is clear in the global financial world at present. The March quarter is almost over and it’s been one of going nowhere. In Australia’s case, that’s included a positive earnings result season. But then a positive result season had already been priced in.
Wall Street will likely finish the quarter down, but not by much. Next month will see the US quarterly result season which may provide some new direction, one way or the other. Meanwhile, traders are agonising over each new economic data point and its implications in light of Janet Yellen’s “threat”, which of course can be watered down at any time.
The US tech sector continues to cop it, as the “mini” dotcom bust plays out. Facebook may have just paid a few bill for some esoteric company that won’t make money this century but the reality check has come in the form of King Digital, which listed on Wednesday night and rapidly became the worst IPO of the year. The creators of the Candy Crush Saga video game (that might mean something to you, certainly not to me) saw their shares fall over 15% on debut and another 3% last night as traders de-rated the initial exuberance over a company which happens to have one, currently popular, game. The birds will be angry.
None of which affects Australia, but if US traders ditch tech names that impacts on the S&P 500, and if the S&P is down traders of the ASX 200 pay attention. As we see above, that Dow was flat last night but the S&P was down 0.2% because the Nasdaq was down 0.6%.
The December quarter can almost be looked upon nostalgically now but in the US the GDP is still being revised. The first estimate, which came out in January, suggested 3.2% growth. The second, in February, said 2.4%. Last night’s “final” revision said 2.6%, although consensus had 2.8%. In April when the first estimate of the March quarter GDP comes out, the “final” December quarter can be revised yet again. Wildly.
US pending home sales fell 0.8% in February to the lowest level since October 2011, providing more concern over a slowdown in the US housing market recovery which has been so fundamental to GDP growth over the past couple of years.
And in other news, this week has seen US banks submit their capital management plans to the Fed for approval – a regular requirement introduced post-GFC. Citigroup was amongst five banks which had their capital (including dividend payment) plans rejected, with the Fed citing insufficient progress in improving risk management and control practices. It’s all part of the “too big to fail” fall-out. Citigroup shares fell 5.5%.
Gold took another dive last night, falling US$10.00 through the significant 1300 mark to US$1293.60/oz as the US dollar index rose 0.2% to 80.14. The dollar rose as the euro fell on ongoing talk of some sort of QE-style stimulus for the eurozone. This didn’t stop the Aussie rising another 0.4% to US$0.9261.
The US ten-year bond yield fell another 3 basis points to 2.67% and continues to move in seemingly the wrong direction if Fed policy is now all about tightening. The bond market is helping to keep a lid on the stock market, and the stock market is continuing to endure intraday volatility while still achieving little. Last night the Dow was down 77 and up 32 before closing down 4.
Wall Street, and indeed the world, is undecided over the Fed, Russia, China, and possible European stimulus. And what’s going to happen when Japan introduces a GST? More stimulus, no doubt.
London metal traders have no idea, so last night saw another reversal as prices rose, including 0.8% for copper, except for nickel, which fell 1%. Spot iron ore rose US40c to US$112.30/t.
Oil prices have regained upward momentum based on a handful of supply-side concerns. An undersea pipeline leak in Nigeria, blamed on oil thieves, has forced Shell to declare force majeure on exports. Protestors continue to disrupt production in Libya, and uncertainty lingers over the possibility of Russia cutting off exports in a sanction tit for tat. Last night Brent rose US72c to US$107.64/bbl and West Texas rose US$1.06 to US$101.32/bbl.
The SPI Overnight fell 4 points.
Japan will release inflation, employment and retail sales data today while in the US the focus is on consumer spending and consumer sentiment.
So far the script is playing out for The Year We Go Sideways as E catches up to P in PE, before the uptrend can resume.
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