Daily Market Reports | Jun 12 2014
By Greg Peel
The Dow closed down 102 points or 0.6% while the S&P lost 0.4% to 1943 and the Nasdaq fell 0.1%.
The “big” news in the local market yesterday was the World Bank’s downgrade of its global economic growth forecast. It makes for good headlines, but updates from the likes of the World Bank and IMF are always made from behind the curve and never from in front. In this case the World Bank has cut its 2014 global growth forecast to 2.8% from the 3.2% set in January.
That’s a 12.5% downgrade, which is no small matter, but it might have helped if in January the WB economists had simply looked out the window. The harsh winter in the US tops the list as a factor in the downgrade, followed by the Ukraine conflict, which by now most of us have forgotten about. There’s also the old story of Fed tapering and an eventual US rate rise impacting on emerging market capital flows, and the even older chestnut of the threat of a Chinese hard landing.
The World Bank spent a wet weekend watching series one on DVD while the rest of us are well through series two on cable.
But when you’re not really sure if you should be buying at market highs, eventually thoughts turn to selling. It has been true this past soggy week in Australia and also true last night on Wall Street. But there are more excuses from the past 24 hours.
Locally, Westpac’s consumer confidence survey for June was a disappointment. It is typical for a federal budget to spark a drop in confidence, notes Westpac, as occurred last month when the confidence index plunged 7%, but it is also typical to see a rebound the month following as the initial panic eases. But the index rose only 0.2% this month, to remain 6.6% below its pre-budget level and 15.6% below its post-election euphoria high.
One might wager that with the budget very much in doubt as law in its current form, a rebound might be postponed until something less unpopular is negotiated.
Internationally, what a stunning success the War in Iraq on behalf of democracy (apparently), the longest war in US history, has proven to be. ISIS, an Islamist group so radical even Al Qaeda is scared of them, has taken Mosul and is no doubt eyeing Baghdad and Iraq’s oil wells in the south. Effectively the Syrian conflict has expanded to Iraq and who knows where it will stop. Not good for markets.
The big bombshell in the US last night was nevertheless a political one.
Lord save us, the US congressional election campaign has begun ahead of the November mid-terms. Remember the Fiscal Cliff, sequestration and the gridlock between a Republican majority Congress and the Democrat Administration that shut down America for a fortnight? Well that seems long ago now and supposedly resolved once even Republican supporters turned on the self-righteous, conservative extremist and totally disruptive Tea Party. We might have assumed the kettle had boiled dry. But no, they’re baaaack.
Accused in retrospect of complacency, the Republican representative, House majority leader and man voted most likely to take over as Speaker from John Boehner, Eric Cantor, lost his primary for candidacy in November to an unknown professor and Tea Party member. Washington is in a state of shock, and as far as Wall Street is concerned, any revival of Tea Party popularity leads ominously to the potential for renewed administrative gridlock.
So as commentators last night tried to determine a reason for the biggest fall on Wall Street in three weeks, all of the World Bank, Iraq and Cantor were trotted out. More likely we can say that if a market rises and stalls, failing to rise further, it will go down. Not correct, just consolidate. That’s what was happening on Wall Street last night, and what has been happening in Australia recently.
Having worn itself out with a seven dollar move on Tuesday night, gold did not respond at all to the Iraq situation last night and is steady at US$1260.70/oz. The US dollar index is steady at 80.78, and the US ten-year yield is steady at 2.64%.
The Aussie, on the other hand, continues to creep higher and is up another 0.3% over 24 hours to US$0.9394.
The World Bank was also an excuse for base metals to drift lower last night, as well as talk a second Chinese port is under investigation for fraudulent loan activity. Aluminium fell 1.5% and nickel 2.5%.
Iron ore fell US10c to US$93.50/t.
The oils were torn between the World Bank downgrade, the implications of ISIS taking Iraq’s second biggest city, and the weekly US inventory chocolate wheel showing a bigger decline than expected. All up, Brent rose US34c to US$110.06/bb and West Texas rose 24c to US$104.49/bbl, to take us back to where we were on Monday night.
The SPI Overnight fell 15 points or 0.3%
It’s jobs day in Australia today, with economists ready for a slight tick up in unemployment. Joe’s minders have prepared two speeches, depending on the result – one praising the Coalition’s economic management skills and the other blaming the former government.
May retail sales numbers will be released in the US tonight which will provide another important indication of whether or not the US economy is indeed rebounding out of its winter slump.
Rudi will appear on Sky Business at noon.
All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit. Click here. (Subscribers can access prices in the Cockpit.)
(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)
All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.
