Daily Market Reports | Jun 27 2014
By Greg Peel
The Dow closed down 21 points or 0.1% while the S&P lost 0.1% to 1957 and the Nasdaq was flat.
If you can keep your head while all about you is losing theirs. It appears the desire to lock in profits for year-end gave way yesterday to the desire to enhance fund manager FY14 returns as the madness continued on Bridge Street. After some sharp selling earlier in the week, the ASX 200 turned tail and returned rapidly from whence it came, with little discrimination among sectors. Expiry of June quarter stock options was no doubt another factor, while the big round of ex-divs was lost in the dust.
We have two more days of this.
A similar dynamic appeared to be in place on Wall Street last night for quarter-end. The Dow was down 121 points from the open on disappointing data and contradictory comments from a Fedhead, before grafting its way back all session to a less imposing close.
There was also a kick around lunchtime when it was confirmed USA will advance to the round of 16.
US personal spending rose only 0.2% in May when 0.4% was expected, and most of that increase can be accredited to big-ticket car and truck purchases. When adjusted for inflation, consumer spending went backwards for a second straight month.
On the other side of the equation, personal incomes rose 0.4% in May and are up 3.5% over 12 months, the highest rate since late 2011, consistent with falling unemployment. A lot of that income was pocketed, with savings rising to their highest level in eight months. Adjusted for inflation, “real” incomes are up only 1.9% over 12 months.
The US economy contracted by 2.9% in the March quarter. Wages are rising and prices are rising and US consumers are not spending. The risk is stagflation. St Louis Fed president James Bullard is on to it, suggesting last night US unemployment may fall below 6% and inflation rise over 2% ahead of the central bank’s 2015 expectation. The implication here is that the Fed may need to raise rates as early as the first quarter next year.
While Bullard is not an FOMC member and known to be hawkish, his suggestion is clearly at odds with Janet Yellen who has called inflation mere “noise” and persistently ensured a zero funds rate for an extended period. The number of observers in the US worried that the Fed is falling behind the curve is growing. Since the release of the final March quarter GDP result, economists have begun to rein in their June quarter growth forecasts. Some started in the fours, now the average is down to 3.6%, and across the spread some economists now have forecasts in the twos.
Beijing’s ongoing probe into illegal collateralised loans hit another target yesterday, with authorities uncovering a US$15bn gold-financing scheme that began two years ago. Chinese firms have used falsified gold transactions to borrow from banks. There is now a suggestion the sudden rally in gold seen on June 19 may have been driven from China. Last night gold futures fell on Comex but the physical spot price is down only US$1.50 to US$1316.90/oz over 24 hours.
The energy markets are beginning to gain more confidence Iraq’s critical south-eastern oil infrastructure is safe from insurgent overrun despite hostilities escalating across all borders. The outcome is still anyone’s guess, but it seems ISIL will not make it that far given strong Iranian-backed Shia resistance. Last night’s weekly US crude inventory reports also showed a rise, so all up Brent fell US$1.17 to US$113.08/bbl and West Texas fell US$1.16 to US$105.64/bbl.
Base metals were again mixed on small moves last night with the exception of nickel, which rose 1.6%. Spot iron ore has posted another solid gain nevertheless, rising US$1.60 to US$95.30/t.
The SPI Overnight rose 3 points.
Will the ASX 200 settle the year at 5400 or 5500? It seems either is possible at this stage and good luck if you can pick it.
Japan will provide a monthly data dump today while tonight the UK will make its final revision of March quarter GDP amidst heightened expectations of a BoE rate rise being near. Fortnightly consumer sentiment is due in the US.
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