Daily Market Reports | May 06 2014
By Greg Peel
The Dow closed up 17 points or 0.1% while the S&P gained 0.2% to 1884 and the Nasdaq rose 0.3%.
The ASX 200 was up 28 points from the open yesterday and down 16 at lunch time before closing basically flat. There seemed little consideration given to a particular FSU country careering towards civil war but there appears to have been a lot of angst about economic data. It unfortunately looks like Australia is about to adopt a US-style good-news-is-bad-news undertone, with the RBA playing the role of the Fed.
The Australian service sector PMI fell to 48.6 in April from 48.9 in March. The local PMIs continue to paint a contractionary picture but other economic data suggest otherwise.
The ANZ job ads series showed another solid rise of 2.2% in April. For the four months to April, ads have grown at an annualised rate of a whopping 30% but as an indication of where we’ve come from, year on year growth is at 1.5% — reaching positive territory for the first time since August 2011.
Building approvals fell 3.5% in March having fallen 5.4% in February, but the 188,000 approvals granted in March represent the highest level since 1995 and a 20% gain on March 2013.
TD Securities’ monthly inflation gauge increased by 0.4% on the headline in April to 2.8% annual, following a 0.2% gain in March for a 2.7% annual rate. Normally we ignore any headline scare to note a more subdued core reading (trimmed mean), but not this time. Having risen only 0.1% in March for 2.7% annual, the core inflation reading jumped 0.5% in April to an annual rate of 3.1%. The headline rate was impacted by a 6.7% drop in fruit and vegetable prices, leaving the measure the RBA is focused on sitting above the central bank’s 2-3% target zone.
This, in theory, would suggest the first rate rise will be due sooner than most had expected. The RBA does not take a lead from TD Securities nor does it respond automatically, so we’ll at least be waiting until after the official June quarter CPI release in August before property investors and retailers start worrying.
What we can deduce is that these numbers do not support a picture of an economy needing a historically low cash rate to survive. But the RBA will be fighting a new contractionary force after next week – the first Hockey budget.
Meanwhile, the HSBC read on China’s manufacturing PMI, released around midday yesterday, showed a rise to 48.1 from 48.0 in March. This might have been good news, if not for last week’s flash estimate of 48.3. Take it as you will. Beijing’s number, released last week, showed a gain to 50.4 from 50.3 and it was after the HSBC release yesterday that the ASX 200 bottomed out.
Wall Street apparently didn’t like the Chinese number, or was it Ukraine fears that sent the Dow down 135 points from the open? Whatever the case, US stocks rapidly rebounded from that point, aided by a service sector PMI of 55.2 in April, up from 53.1 in March. But the US indices took their lead from and closely tracked the US ten-year bond yield in the session, suggesting that concerns over why US yields remain so low, and the yield curve so flat, are weighing on stock investors. Last night the ten-year yield fell initially before closing up 2 basis points to 2.61%.
Only gold was left to display apparent lingering concern over the Ukraine, rising another US$9.60 to US$1310.20/oz last night, despite the US dollar index being steady at 79.51.
Trading has been relatively thin around the globe these last few sessions, with holidays being enjoyed all over the place. Late last week Europe and China were closed, Japan and Korea were closed yesterday and will be again today, the UK was closed last night and May 5 is a big festival in Mexico. Sunday was, of course, the most important day on the Jedi calendar (May the fourth be with you).
With London closed there was no base metals trading yesterday, while iron ore fell US10c to US$105.90/t.
The oil markets are in a quandary at present, stuck between excess US supply, potential sanctions against and from Russia, and Libyan supply that is only tenuously flowing once more. Not to mention the Chinese PMI yesterday. So last night Brent fell US96c to US$107.63/bbl and West Texas fell US38c to US$98.38/bbl.
The Aussie is steady at US$0.9277 and the SPI Overnight rose 10 points or 0.2%.
The RBA will hold a policy meeting today and while no one expects any change from a 2.5% cash rate, attention will focus on the statement’s views on inflation and the stubbornly high Aussie dollar. We’ll also see the March trade balance numbers today.
The world is dominated by uncertainty at present. What might happen in the Ukraine? Is the US economy bouncing back from the harsh winter? Will the ECB introduce QE? Is the Australian economy actually transitioning better than expected, implying RBA tightening? But whereas uncertainty is usually the mother of volatility, the current global picture is one of tracking sideways. Without quite knowing what to do, it’s best to do nothing.
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