Daily Market Reports | Jun 06 2014
By Greg Peel
The Dow rose 98 points or 0.6% while the S&P gained 0.7% to 1940 and the Nasdaq added 0.9%.
A rebound in the iron ore price failed to excite an Australian market suffering ongoing budget blues yesterday morning, with the index falling from the open. The mood did not improve on the release of the April trade data.
Wednesday’s March GDP result, which showed strong growth driven solely by mining exports, aroused fears March may represent a peak ahead of mining revenues falling and nothing rising to take the mantle. When the April trade balance came in at a deficit of $122m, instead of a forecast surplus of $300m, it seemed these fears were already proving founded. Exports fell by 1.4% in the month and imports rose 2.3%.
But the April result was tempered by revisions to the previous two months’ balances. March was revised to a surplus of $902m from a previous $731m and February to $1729m from $1257m. Mining exports will continue to contribute to GDP ahead, say economists. And soon we can add LNG to iron ore and coal as the big contributors.
The release of HSBC’s take on China’s May service sector PMI provided little encouragement, falling to a four-month low of 50.7 from April’s 51.4 and belying the positive official result posted earlier this week by Beijing.
By late morning the ASX 200 turned, wobbled for a while, and ultimately ended with a flatter close of down 7 points. Traders were likely looking to Europe in setting their overnight positions.
Super Mario didn’t disappoint, that is, if you’re a fan of funny money. Last night the ECB cut its cash rate to 0.15% from 0.25% and its deposit rate to minus 0.1% from 0%, implying European banks will have to pay the ECB to park their funds. Several liquidity measures were also announced, including E400bn of “targeted long term refinancing operations” aimed at supporting bank lending to households and businesses and other such technical tricks, but the ECB stopped short of some form of asset purchases, or QE. That’s being kept on standby.
Draghi has said for years he would do “whatever it takes” and the mantra has not changed.
The euro plunged sharply during Draghi’s press conference last night, which is the correct direction when money printing or the equivalent is announced. However traders were short to the gills in the long lead up to last night, so within a heartbeat the euro bounced, and bounced hard, as shorts were rapidly covered. The euro is thus higher than where it was yesterday, and the US dollar index is down 0.4% to 80.34.
Gold also headed in the correct direction but looked a bit half-hearted with a US$9.30 gain to US$1253.00/oz. The US ten-year bond yield lost a couple of bips to 2.58%. The Aussie is a victim, at least in the short term, in rising 0.7% to US$0.9339.
Base metals closed on mixed and small moves with Chinese concerns hanging over any positive implications of euro QE or the lower US dollar. Beijing is investigating the Qingdao company alleged to have collateralised 20t of copper into 4-50t worth of loans. The concern is a further clampdown by the government will see large amounts of metal dumped onto the market.
The spot iron ore price fell US30c to US$94.30/t.
The weaker greenback provided enough impetus for the oils to close in the positive, despite further evidence of building US inventories in the latest weekly data. Brent rose US51c to US$108.82/bbl and West Texas rose US16c to US$102.51/bbl.
The SPI Overnight gained 9 points, again.
The Dow and the S&P are now firmly back in blue sky territory. While the ECB move was widely expected, Draghi does have a track record of talking much and doing little. Not this time. Attention now moves to tonight’s US non-farm payrolls number, over which Wall Street has been slightly concerned since Wednesday night’s private sector jobs number proved disappointing.
Today also sees Australia’s construction PMI and over the weekend, China’s May trade balance will be released.
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