Daily Market Reports | Jun 30 2014
By Greg Peel
Following all the end of year argy-bargy experienced in Australian stocks last week, Friday saw a low volume day and an afternoon drift-off as the frenzy subsided. We still have today to get through, being the last opportunity for tax sales versus window dressing, and then tomorrow may also prove volatile if dressing is reversed.
So it will be later in the week before we begin to see where the ASX 200 really wants to be, and there is a barrage of local and global data due this week to provide food for thought.
It was a choppy session on Friday on Wall Street, which was also put down to end of quarter shenanigans. Indices were looking weak around 2pm before a sharp rebound, which was largely attributed to the annual rebalancing of the Russell index on the closing bell. Again, we’ll need to get past tonight to see where Wall Street wants to sit, but at this stage it doesn’t appear Wall Street’s all that sure.
Having been down 73 points around 2pm, the Dow closed up 5 points on Friday. The S&P rose 0.2% to 1960, helped along by the Nasdaq which rose 0.5%.
The only economic data release of note was the fortnightly Michigan Uni consumer sentiment measure which showed 82.5 for the end of June, up from 81.9 a month earlier and 81.2 two weeks ago. Economists had expected the end-June result to be 81.9.
Do we all remember “Comedy Ali” from the Second Gulf War? He was Saddam’s PR officer and media conduit to the world whose regular updates on the progress of the war always had the media scrum falling about. His piece de resistance was insisting that American troops were “committing suicide on the walls of Baghdad” so fierce were their Iraqi opponents, just as the allies were overrunning the capital.
Well Ali’s back, in a different guise. Maliki’s man was telling the world last night that ISIL troops were meeting such fierce resistance their generals were “fleeing Iraq dressed in women’s uniforms”. The truth is the army is finding it tough to reclaim Saddam’s old stamping ground of Tikrit, although the ISIL advance does seem to have been stalled for now. New intelligence suggests ISIL does not have the funds to last much longer, while the petrodollars the government distributes to the Sunni regions of Iraq to sustain their existence have stopped flowing as well.
The oils were only a little higher on Friday night as the world watches to see how the Iraq situation plays out. Brent rose US21c to US$113.29/bbl and West Texas rose US10c to US$105.74/bbl.
Japanese data was in focus on Friday. March had seen a huge jump in Japanese consumer spending ahead of April’s GST increase and then April saw a 4.6% fall to compensate. Economists expected May to see a levelling out of the adjustment but instead spending fell 8.0%.
Core inflation jumped to 3.4% in May, well above Tokyo’s 2% target and representing the highest read in 32 years, but if the GST effect is removed that number becomes 1.4%. The yen was nevertheless unaffected by the data, leaving the US dollar to continue its weakness on the March quarter negative GDP hangover. The dollar index was down 0.2% to 80.02 on Friday night, and the Aussie dollar was up 0.2% to US$0.9430.
The concern now is that we will enter the northern summer carry trade season with the Aussie (and Kiwi and Canadian) offering high-yield sanctuary for the holiday break. Offshore fund managers can borrow at low domestic rates and buy Aussie bonds or other assets on a sizeable yield differential and set-and-forget for the summer, thus pushing up the high-yield commodity currencies.
It will be interesting to see what the RBA has to say about the currency in tomorrow’s policy statement. It certainly won’t be cutting the cash rate, but with the Fed remaining curiously dovish and the ECB now in on the stimulus game (and let’s not forget the BoJ), the currency relief that was expected by now just isn’t going to materialise.
Base metals prices were all a little lower in London on Friday night while spot iron ore fell US40c to US$94.90/t.
The SPI Overnight was up 8 points.
Wherever the ASX 200 closes today, the index will still be up around 14% for the financial year which is not a bad result. Throw in dividends and it’s a lot better still. But this week sees FY15 upon us and a deal of uncertainty ahead – the Chinese economy (as always), Fed policy, Iraq and locally, what the budget will actually look like once it comes out the other side of the review process.
This week’s barrage of May/June data from home and abroad will provide a lead-in to the year ahead.
Tomorrow is manufacturing PMI day, which sees numbers from Australia, Japan, the eurozone, UK and US as well as the two most important to Australia – Beijing’s and HSBC’s China results. Service sector PMIs follow on Thursday.
It’s a short week in the US with the Fourth of July conveniently falling on Friday to provide for a nice long weekend. US markets will shut down at lunchtime on Thursday, including the NYSE at 1pm, but realistically they’ll cease to operate much after Wednesday.
Other than the PMIs, US data releases begin tonight with the Chicago PMI and pending home sales, followed by construction spending and vehicle sales on Tuesday and factory orders and the ADP private sector jobs number on Wednesday. The June non-farm payrolls result is pulled forward to the Thursday, given the holiday.
Tonight sees a flash estimate of the eurozone CPI for June and Thursday night the ECB will hold a policy meeting. Step one for Mario Draghi was to introduce negative bank deposit rates at the central bank and step two will be some form of QE if deemed necessary, but maybe not as soon as this week.
The RBA will meet tomorrow as noted after Australia sees private sector credit, the TD Securities inflation gauge and HIA new home sales data today. Tomorrow also brings the RP Data house price index and the manufacturing PMI, and Wednesday it’s the trade balance.
All eyes will be on Thursday’s retail sales number. The queue of retailers issuing profit warnings this month had a lot to do with unseasonably warm May weather, so presumably the data will tell the tale. Thursday also sees building approvals along with the services PMI.
Scheduled corporate announcements will now dry up to nothing as we enter the effective blackout month of July, when companies concentrate on preparing their financial results.
Rudi will appear on Sky Business today at 11.15am, on Wednesday at 5.30pm and on Thursday at noon.
For further global economic release dates and local company events please refer to the FNArena Calendar.
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