Daily Market Reports | Apr 03 2014
By Greg Peel
The Dow closed up 40 points or 0.2% while the S&P gained 0.3% to 1890 and the Nasdaq rose 0.2%.
The ASX 200 is struggling to meaningfully break through 5400 which is no great surprise given the technical significance of the level. Meanwhile the S&P 500 is back into blue sky and last night the Dow briefly traded at a new all-time high for the first time in 2014 before slipping just under at the close. We are reminded that the all-time high in the ASX 200 is 6828, a mere 26% away. In very simple terms, the difference between us and the US is the Aussie dollar effect.
Yesterday saw a choppy ride on Bridge Street as the market opened with gusto on Wall Street’s lead but then fell on the weak building approvals numbers. Residential building approvals fell 5.0% in February which is a bit disturbing when the housing market is supposed to be one of the primary drivers of Australia’s economic transition away from mining development. It is also disturbing given capital city house prices rose a record 2.3% in March. The two numbers together suggest supply is falling as demand is rising.
But residential building approvals are up 23.2% over twelve months. Non-residential is also trending higher, as are numbers for home alterations and additions. One clear trend is the increase in multi-unit dwellings which now represent 45% of approvals versus 55% single homes compared to 30/70% ten years ago. Apartment blocks and town houses represent less investment per unit than houses but can ease the supply squeeze more quickly.
The index then received another kick yesterday when Beijing answered the call and rolled out a “mini” stimulus package. Gone are the days of late 2008 when China implemented the biggest fiscal stimulus package in the history of mankind and in so doing fuelled property and credit bubbles. More recent stimulus has involved incremental, targeted spending with a mind to avoiding further indiscriminate lending and the package announced yesterday will be directed towards railways, social housing and tax relief for small businesses.
The market had already priced in stimulus from Beijing and the mini package is no great game changer. Hence the ASX 200 yet again slipped back towards the 5400 mark.
The Dow Transports has hit a new all-time. In tea-leaf terms a new high in the Dow Transports preceding a new high in the Dow Industrials (“the Dow”) is a bullish signal and closely watched on Wall Street. In fundamental terms an increase in transport sector earnings implies rising economic activity which implies a flow-through to an increase in industrial sector earnings. Next week the US earnings season begins.
Last night’s US economic data releases included a 1.6% rise in factory orders in February following a 1.0% fall in January, compared to 1.3% expectation. And ADP reported the private sector added 191,000 jobs in March, up from February’s increase of 178,000. Consensus for tomorrow night’s non-farm payrolls number has now risen to 200,000 new jobs.
The US dollar index rose 0.2% to 80.23 last night on a combination of the positive US data and selling in the euro ahead of tonight’s ECB policy meeting. There has been a lot of talk this past week or so about the ECB possibly easing policy further in some way, shape or form to fight the threat of deflation. Inflation in the US is also failing to gain any traction and so it was a bit of Fedspeak last night from one of the known FOMC doves who suggested that the tapering program could itself be tapered if inflation failed to respond. This was enough to stop the rot in gold, at least for now, which rose US$9.00 to US$1290.10/oz.
It was not enough, nevertheless, to encourage any change of heart on the US bond market. With geopolitical tension easing and fears of a China slowdown abating the benchmark US ten-year bond yield has been creeping up again, and last night hit its highest level since January at 2.80%. Bond yields are supposed to move higher as tapering continues.
Aluminium has gained a bit of support lately and last night rose 2%, but strength is related more to supply-side cuts than increased demand. The price remains below the average cost of production. Copper jumped initially on news of the earthquake off the Chilean coast but fell back again once it appeared mining infrastructure in the country, where the likes of BHP Billiton operate major copper mines, was unaffected.
Spot iron ore fell US$2.30 to US$115.30/t. Perhaps the market was hoping for a more exciting stimulus package from Beijing.
Oil prices ticked down further, with Brent falling US60c to US$104.56/bbl and West Texas falling US25c to US$99.49/bbl.
Despite the rise in the US dollar index, the Aussie is steady at US$0.9246.
The SPI Overnight rose 18 points or 0.3%.
It’s service sector PMI day today, with numbers due from across the globe and most importantly, for Australia, both Beijing and HSBC will release China numbers. Australia will also see retail sales and trade balance data.
Tonight Wall Street may well go quiet ahead of tomorrow night’s jobs report but all eyes will be on the ECB. Any further easing would be seen as positive.
Rudi will appear on Sky Business at noon and again on Switzer TV between 7-8pm to discuss iron ore.
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