Daily Market Reports | Jun 16 2014
By Greg Peel
Friday on Bridge Street saw solid selling and at around 11.30am, when the ASX 200 was down 55 points, it looked like we could be in for one of those typical snowballing sessions to a 1% plus down-day. The combination of the weak lead from Wall Street, Iraq concerns and another big drop in the iron ore price provided the impetus.
But the buyers arrived to force a rebound on what proved a strong volume session. The materials sector led the selling, down 1.3%, while energy rallied 1.3% on higher Iraq-related oil prices and yield was sought across the board, easing the fall in the banks for example. With yield still the Holy Grail, it will take something more significant to evoke a true correction in the ASX 200.
By Friday night the swiftness of the ISIS incursion had the US in shock and President Obama was forced to admit he was not sure what to do about it just yet. Whatever the response, it won’t involve sending the troops back again. And after two solid down-days in Wall Street with Iraq the backdrop, traders decided this is not the stuff of corrections. Geopolitical incidents spark sharp but relatively brief responses in this day and age. And the energy sector provided support.
The Dow closed up 41 points or 0.3% while the S&P gained 0.3% to 1936 and the Nasdaq added 0.3%. It was briefly a negative start for the session nevertheless, following the day’s economic data releases.
Michigan Uni’s fortnightly consumer sentiment index surprised with a fall to 81.2 from an end-May 81.9. Given the strong jobs numbers released in June and the new highs posted on Wall Street prior to the Iraq sell-off, economists had forecast a rise to 82.8.
The producer price index release for May was also a surprise. It fell 0.2% following gains of 0.6% and 0.5% in April and March when economists had expected a 0.1% gain. Those earlier readings had prompted fears inflation was beginning to emerge which would force the Fed to consider raising rates sooner rather than later. Inflation is the sign of a recovering economy but Wall Street does not want a rate rise yet. There is nevertheless an issue with the PPI at present given the government overhauled its calculation model in January and economists are finding it difficult to get a handle on the new readings.
Traders won’t have to wait long to learn what the Fed thinks about it all given a policy meeting this week, with the statement due on Wednesday night along with Janet Yellen’s second quarterly press conference as Fed chair.
In the end, Wall Street managed to stabilise in a choppy session. Stability was also the case across other markets.
The US dollar index was steady at 80.02 while gold ticked up US$2.80 to US$1275.90/oz and the US ten-year bond yield hovered at 2.60%. Having risen solidly during last week, the Aussie dipped back 0.3% to US$0.9402.
Base metals posted minimal positive moves across the board but the iron ore price fell another US60c to US$90.90/t.
Having made their big moves on Thursday night, the oils also stabilised. Brent ticked up US35c to US$114.31/bbl and West Texas was steady at US$106.82/bbl.
The SPI Overnight closed up one point.
The aforementioned Fed meeting will draw Wall Street attention away from the Middle East this week although no one expects much of a change in sentiment from the central bank. Having no doubt learned a valuable lesson last press conference, Janet Yellen will soothe rather than shock. But there are also plenty of data releases for Wall Street to digest this week.
Tonight sees industrial production, housing sentiment and the Empire State manufacturing index. Tomorrow it's housing starts and the CPI, Wednesday is the Fed meeting, and Thursday brings the Philadelphia Fed manufacturing index and the Conference Board leading economic index. Friday it's quadruple witching on Wall Street, when all the June stock market derivatives expire.
Eurozone data this week include a confirmation of the CPI tonight and the ZEW investor sentiment survey tomorrow night, but now that the ECB has acted and pledged further action, European data don’t really matter anymore.
Chinese property price data are due on Wednesday and New Zealand’s March quarter GDP result is due on Thursday (if only the All Black backline was as slow!) but given the RBNZ raised its cash rate last week, the GDP is old hat.
The minutes of the June RBA meeting are due out tomorrow. Of greatest interest will be board discussions regarding the Hockey budget and its impact on policy considerations, albeit we’re yet to find out just what shape the budget ends up in after running the gauntlet of the Senate.
Beyond that, Australia is largely devoid of data releases this week bar vehicle sales today. The June quarter RBA Bulletin is due on Thursday and Thursday also sees the local expiry of June SPI and SPI options and ASX index (XJO) options.
On the corporate front, David Jones ((DJS)) shareholders meet extraordinarily tomorrow to vote on the South African takeover while Asciano ((AIO)) will provide an investor update on Thursday.
Apparently there’s some sort of soccer tournament going on in South America this week.
Rudi will appear on Sky Business today at 11.15am, on Wednesday at 5.30pm and again later on Wednesday (7.15am) for the Switzer Report. On Thursday he'll be at it again at noon (Lunch Money).
For further global economic release dates and local company events please refer to the FNArena Calendar.
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