Daily Market Reports | Jun 04 2014
By Greg Peel
The Dow closed down 21 points or 0.1% while the S&P was flat at 1924 and the Nasdaq fell less than 0.1%.
Everything that was bought on Monday in the Australian stock market to offset the impact of the plunging iron ore price was sold yesterday, with the biggest fall reserved for the consumer discretionary sector, down 1.6%. The market is certainly twitchy, hence a tepid 0.2% increase in retail sales in April when 0.3% was expected proved to be a bit of a trigger.
Year on year, sales are up 5.7%, and the long term consumer spending trend is 6%, so it’s hardly panic stations. So much for shows like Masterchef and My Kitchen Rules reinvigorating the joy of home cooking, spending in cafes and restaurants is up 11.7% year on year – the biggest segmental gain. In April, sales in department stores actually rose 2.9%, which means a customer must have found a shop assistant.
To weightier matters, Australia’s current account deficit (not to be confused with the budget deficit) halved in the March quarter to $5.7bn or 1.4% of GDP, beating expectations of $7bn. International trade forms part of the current account equation, and here exports jumped 5.3% and imports fell 1.0% which affected a doubling of the balance of trade to $15.1bn, worth 1.4 percentage points of GDP.
And that means an RBA rate cut is less likely, if ever it were likely, which didn’t sit well with those hoping the “weak” retail sales numbers might prod the central bank into further action. The data were worth a 20 point fall in the ASX 200, and when the RBA statement came out to confirm no rate change, the index fell another 20 points with the sulks. Never mind that no one from here to Mars actually expected a rate cut, or any suggestion of one.
I said last week the June RBA statement will probably be a carbon copy of the May statement, which itself was almost identical to the April statement and so on, and it was. Except for one line. In May the board noted “The exchange rate remains high by historical standards,” while yesterday the board noted “The exchange rate remains high by historical standards, particularly given the further decline in commodity prices”.
It didn’t work. The Aussie is up 0.2% to US$0.9266, largely reflecting the balance of trade result.
HSBC also released its take on the Chinese manufacturing PMI yesterday, which echoed Beijing’s official reading with a rise but only to 49.4 in May from 48.1 in April, falling short of a 49.7 forecast and still implying contraction (Beijing had 50.8). This would not have helped the local market yesterday either. Yet Beijing’s official service sector PMI rose to 55.5 from 54.8 to a six-month high, and China’s service sector is rapidly growing much larger than its manufacturing sector. As was the case with Beijing’s manufacturing result, new orders were the stand-out contributor in services which bodes well for the Chinese GDP going forward.
None of the above had any effect on Wall Street, which is simply drifting this week around all-time highs ahead of tomorrow night’s ECB policy meeting and Friday night’s US jobs number. Last night the eurozone released its flash CPI reading for May, which showed a fall to 0.5% annual growth from 0.7% in April, missing expectations of 0.6%. While Mario Draghi has shrugged off deflation fears up to now, he has said he may act to reboot the eurozone economy with policy measures this month (ie tomorrow night), which may include any or all of a cash rate cut, a central bank deposit rate cut to negative and some form of QE.
As the world awaits Mario’s crucial decision, just about everything is drifting in the doldrums. Everything, that is, except US bond yields.
Having hit its low for the year last week, the benchmark US ten-year yield has since risen sharply for four consecutive sessions just as the world began to seriously agonise over why it was so low in the first place. Last night saw a 6 basis point gain to 2.59%, with traders likely squaring up ahead of what might be disappointment from Brussels, and/or what might be a good US jobs number. The world is long US Treasuries so it’s probably just a precaution.
Other than that, the US dollar index is down 0.2% to 80.53 and gold is steady at US$1244.70/oz. Base metals were mixed although copper gave back Monday night’s 1% gain and volatile nickel decided to fall 2%. The oils barely troubled the scorer last night.
Spot iron ore rose US40c to US$92.50/t.
Despite the flat close on Wall Street the SPI Overnight closed up 10 points or 0.2%, likely seeing yesterday’s session as a bit of a tanty.
Today is GDP day in Australia. Leading into this week’s raft of March quarter data releases consensus was for a 0.8% quarter on quarter gain for 3.2% growth year on year. After adjusting for the component data, CBA, for one, is now forecasting 1.0% qoq for 3.3% yoy.
We’ll also see further service sector PMI results today and tonight from here and across the globe while the May private sector jobs growth for the US will be released and the Fed will deliver its Beige Book.
Rudi will appear on Sky Business at 5.30pm.
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