Daily Market Reports | Apr 02 2014
By Greg Peel
The Dow rose 74 points or 0.5% while the S&P gained 0.7% to 1885 and the Nasdaq jumped 1.6% (somewhat of a turnaround).
RBA governor Glenn Stevens’ statement following the March policy meeting included this line:
“Looking ahead, the Bank expects unemployment to rise further before it peaks. Over time, growth is expected to strengthen, helped by continued low interest rates and the lower exchange rate.”
Yesterday’s statement included this line:
“Looking ahead, continued accommodative monetary policy should provide support to demand, and help growth to strengthen over time.”
This line is the only change in the entire statement from March to April. Do we infer that the RBA no longer expects unemployment to rise further before it peaks? If so, any idea of another rate cut looks even more remote. And what of the currency? If the “lower exchange rate” reference has now gone, does this mean (a) the RBA no longer believes a lower exchange rate will help growth to strengthen, or (b) the RBA no longer expects the exchange rate to fall any lower? Stevens did repeat that “the exchange rate remains high by historical standards”.
Despite the Aussie rallying 6% from its recent lows, suddenly the RBA has stopped trying to talk it down. Perhaps it’s a bit hard to talk down a currency on the one hand while implying the next rate move will be to the upside on the other. See the employment reference above.
Meanwhile, the RP Data-Rismark index released yesterday showed capital city house prices rising 2.3% in March – the biggest monthly rise since records began being kept 18 years ago. Bubble? What bubble? It is interesting that such price rises should coincide with a recent loosening of bank mortgage lending requirements. The RBA may have given up on the currency but it has stepped up its warnings on the housing front to both borrowers and lenders. Maybe a rate rise sooner rather than later is needed to cool the market.
The problem is that Australia’s manufacturing industry continues to contract. Not that the country’s economic future lies in manufacturing. Yesterday’s PMI showed an increase in the pace of contraction in March with a fall to 47.9 from 48.6 in February. But Bridge Street was never going to pay a lot of attention to the domestic number. What mattered were the Chinese numbers.
Beijing’s manufacturing PMI rose to 50.3 from 50.2 in February. HSBC’s equivalent fell to 48.0 from 48.5. Neither survey is praised for its accuracy and HSBC’s leans more towards SMEs, which often results in a gap in absolute value, but rarely do the two move in opposite directions. Whatever the case, the ASX 200 turned around on the Chinese releases yesterday.
The index fell in the morning by an amount roughly equivalent to the rally on the last day of the quarter, just to confirm that was all about window dressing. Then the Chinese data came out, and the index rallied back to provide a flattish close. Last week when HSBC’s flash estimate of China’s March PMI suggested a fall to 48.1 from 48.5, Bridge Street rallied on the assumption Beijing must now step in with the stimulus. Yesterday’s result provided confirmation on the HSBC result, but Beijing’s number improved and remains in expansion territory. Does the Chinese government actually pay any heed to some throwback to British colonialism? Or on the basis of a positive government number, is the need for stimulus now less urgent? Either way, the ASX 200 rallied in the afternoon.
In other manufacturing news, the eurozone PMI fell to 53.0 in March from 53.2 while there was some concern in the UK with a fall to 55.3 from 56.7. Australian manufacturers would give their left ones for a number like 55. The US PMI rose to 53.7 from 53.2, which appears on face value to reinforce weather excuses.
And as it was the S&P 500 closed at a new all-time high last night. Through rain and snow and dark of night. Here’s an interesting statistic: Around 94% of all gains in the S&P 500 are made in the two weeks before each quarterly result season and in the four weeks of the result season. US companies will begin reporting March quarter results in the next couple of weeks and expectations are that forecasts have been lowered too far.
The US dollar index was steady last night at 80.09 and gold was little moved at US$1281.10/oz. The Aussie is 0.2% lower at US$0.9248. Is that because the HSBC PMI was weaker or Beijing’s number stronger?
Base metals price moves were mixed and inconsequential while spot iron ore rose another US70c to US$117.60/t.
Then there’s oil. Having barely moved in the last several sessions, suddenly the oils decided to tank last night. Brent fell US$2.59 to US$105.16/bbl and West Texas fell US$2.29 to US$99.29/bbl. The excuse given was the “weak Chinese PMI”, which seems dubious. Aside from Beijing’s number implying improvement, HSBC’s number was close enough to last week’s flash estimate as to be old news. It is more likely the bulls became sick of waiting for oil to rise, and as each day goes by it appears less likely there will be any disruption to oil supply in relation to the Ukraine situation, hence someone decided to bail and a stampede was started.
The SPI Overnight rose 27 points or 0.5%.
Perhaps today is the day we crash through 5400. Building approvals data are out today, and tonight in the US sees the ADP private sector jobs number which provides clues for Friday’s all-important non-farm payrolls release.
Rudi will appear on Sky Business at 5.30pm.
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