The Overnight Report: It’s All Ups And Downs

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By Greg Peel

The Dow closed up 32 points or 0.2% while the S&P eased 0.1% to 1875 as the Nasdaq fell 0.4%.

The market taketh away and the market giveth. On Tuesday night the Dow fell over 100 points and on Wednesday night it rose over 100 points. On Wednesday the ASX 200 fell 40 points and yesterday it rose 40 points. On Wednesday you couldn’t give away a bank or an iron ore miner and yesterday you would have been bowled over in the rush. Yet the NAB result was a touch on the low side and the iron ore price fell. On Wednesday the retail sales number was weak and yesterday the jobs number was strong, but economics are only a distraction in a thin market.

Yesterday’s Australian April jobs number was one of the cleanest and most positive for some time. Gone were the wild head-scratch numbers of earlier in the year to be replaced by a more sensible 14,200 addition. There were several encouraging aspects to the report: (1) the unemployment rate remained steady at 5.8% when a rise to 5.9% was expected; (2) the participation rate was also steady, meaning the “beat” on the unemployment rate had nothing to do with people leaving the workforce; (3) all of the net gain was in full-time jobs for once, with part-time jobs remaining flat; and (4), despite the steady unemployment rate, the RBA’s closely watched trend in unemployment has now turned negative (or if you like, trend in employment has turned positive).

In its April statement the RBA suggested “The demand for labour has remained weak and, as a result, the rate of unemployment has continued to edge higher. It will probably rise a little further in the near term”. This week’s May statement was a tad more positive: “The demand for labour has been weak over the past year and, as a result, the rate of unemployment has risen somewhat. More recently, there has been some improvement in indicators for the labour market, but it will probably be some time yet before unemployment declines consistently”.

Yesterday’s result will potentially lead the central bank to believe unemployment may have peaked earlier than it had previously assumed. The turn in trend may yet prove a head-fake but the sort of numbers some economists were forecasting at the beginning of this year – such as a peak of 6.5% in 2015 – look a little bearish. This result alone will not spark a rate rise, but it’s another piece in the puzzle.

China’s April trade balance hit the wires about the same time yesterday. It showed a further push back into surplus following the brief lunar new year-impacted foray into deficit in rising to US$18.45bn from US$7.71bn in March and beating expectations of US$13.9bn. Having fallen 6.6% in March, analysts had expected Chinese exports to fall 3.0% in April but instead they rose 0.9%. Imports fell 11.3% in March and analysts expected a fall of 2.1% but they rose 0.8%.

So China provided reasons to be cheerful, part two, but realistically we’ve seen a lot of volatility in the local market of late but no meaningful shift out of the 5400-5500 range while similarly Wall Street has been flying around just below all-time highs and effectively going nowhere.

Last night the Dow rose steadily from the bell on easing Ukraine tensions, positive China data and a decent read on US chain store sales, to send the Dow up 104 at lunchtime and into fresh blue sky. By 3pm, the Dow was slightly negative. At 4pm, it closed up 32, below the all-time high. The Nasdaq again proved a drag, with last night’s momentum victim du jour being electric car maker Tesla, down 11% after offering weak guidance.

Another positive lead for Wall Street from the bell came from ECB president Mario Draghi after last night’s ECB policy meeting. Prior to the meeting, forex traders pushed up the euro in an attempt, it would seem, to taunt Draghi into actually acting on his now hackneyed threats to ease policy in order to cap the currency, likely presuming he would cry wolf yet again. So when Draghi said he would be “comfortable” acting June if needs be – the first time an actual timeframe has been suggested – the euro tanked. ECB easing would flow through to positivity globally, assuming you’re a QE fan this late in the game.

Many aren’t of course, which is why we have this unfamiliar dichotomy on Wall Street of a bullish stock market and a bearish bond market (in economic outlook terms). Or is there a simpler explanation? Surveys suggest almost three quarters of those investing for retirement in the US would rather put their money into cash instead of a stock market which blew them away six years ago. A thirty-year government bond will get you 3.4% while cash will get you little more than zero (ie negative real).

The US dollar index rose 0.3% to 79.44 last night on the euro’s fall, the US ten-year yield was steady at 2.60%, gold was steady at US$1289.20/oz and the Aussie has risen 0.4% to US$0.9369 on the positive local jobs number.

It was fun and games in metals last night. The LME closed with Wall Street at its highs, which was provided as the reason all base metal prices were positive rather than the Chinese trade data. Copper was up 1%. One might have assumed a bit of the Russia-sanction premium could have come out of nickel last night given Putin’s apparent back-down, but we’ll never know because Vale announced it had suspended production at its nickel mine in New Caledonia. You might be forgiven for thinking New Caledonia is hardly the nickel capital of the world. The LME nickel price jumped 4%.

On the other hand, iron ore fell US$1.40 to US$103.70/t.

The oils were relatively steady, with Brent down US11c to US$108.01/bbl and West Texas down US48c to US$100.29/bbl.

So we had a flattish session on Wall Street and mixed messages from commodities. The SPI Overnight is up 3 points. Looks like a Friday.

China’s inflation data are out today while the RBA will release its June quarter Statement on Monetary Policy. JB Hi-Fi ((JBH)) will provide a trading update.

After the bell on Wall Street, News Corp ((NWS)) posted a positive result and its shares are up 2% in the after-market.
 

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