Daily Market Reports | Jul 11 2014
By Greg Peel
The Dow closed down 70 points or 0.4% while the S&P lost 0.4% to 1964 and the Nasdaq dropped 0.5%.
It was a soggy day on the local bourse yesterday with a rebound on Wall Street failing to incite any enthusiasm. Volumes remain school holiday-light and notwithstanding the billy lids, many market participants take a break in the July lull between EOFY and the August reporting season. Thredbo beckons. Data releases on the day were uninspiring, and no doubt a lack of activity to some extent reflected the circus going on in Canberra. Is the carbon tax going or isn’t it? It’s not a trivial matter so we’d kinda like to know, Mr Brick.
Economists have been expecting Australia’s unemployment rate to tick up to the 6% mark for months now, only to be surprised when it hasn’t. As lead indicators, such as ANZ’s job ads series, have shown improvement of late, some economists had begun to wonder whether it ever would.
Well in June it did, up to 6.0%, with the May number revised up to 5.9% from 5.8%. The unemployment rate rose despite a net 15,900 jobs being added when May had shown a 4,800 fall, but that consisted of 19,700 extra part-time jobs against a 3,800 drop in full-time jobs. The key to the rise in the unemployment rate despite jobs being added is the participation rate, which showed more Australians looking for work. This is a positive sign in itself, as it suggests more confidence in jobs being found.
CBA’s economists were unmoved by yesterday’s result, noting fluctuations in the participation rate have kept the unemployment rate at an average of 5.9% for six months. “When you couple that with the leading indicators of the labour market,” said CBA, “ it looks to us like we are sitting around the peak in the unemployment rate, which is looking increasing more like a plateau”.
A fairly tepid response in the forex market underscores CBA’s lack of concern. The Aussie is down 0.2% to US$0.9392.
China’s June trade data, also released yesterday, were nevertheless a tad disappointing. Exports increased 7.2% year on year after rising 7.0% in May, but 10.4% was forecast. Imports rose 5.5% in June having fallen 1.6% in May when 6.0% was forecast.
In past years Australian markets were very focused on the export number as that represented how many cheap fridges, televisions and cars China was selling to the US and Europe and thus how much iron ore, coal, copper and so forth would be needed from Australia. Today the real focus is on the import number, given Beijing has been shifting China’s economy to a domestic-driven model and less of an export-reliant model. More important now for Australia is Chinese infrastructure and property development, alongside domestic consumer spending on fridges, televisions and cars.
As we move on to the global picture, we recall that there’s been talk for over a year on just when Wall Street might suffer a long overdue correction, and if so what might be the trigger for that correction. But the thing about correction triggers is they are usually something we never saw coming. And on that note, remember Portugal?
Portugal is one of the original “Club Med” peripheral eurozone disaster sites, despite being on the Atlantic. Haven’t heard a peep out of them in ages other than to note Portuguese bond rates, like all Club Med rates at present, are ridiculously low on a global risk relativity basis simply due to the ECB’s pledge of unending support. Last night Portugal’s Banco Espirito Santo spooked European markets when it announced a delay in a debt payment and admitted to a E2-3bn capital shortfall. Immediate speculation was of a state rescue being required. Holy Ghost Batman. We haven’t heard of any difficulties in European banks for years. On the news, the Dow opened down 180 points.
Portugal’s central bank was quick to issue a statement ensuring “the solvency of Banco Espirito Santo is solid” and clarification soon filtered through of some convoluted holding company structure which implied it was the holding company that had issues and not the BES itself. Wall Street rebounded, but everyone was a little shaken.
As famed market commentator Dennis Gartman always says (and said again on CNBC this morning), if you find one cockroach you can usually be assured there are more.
BES shares fell 17% last night, the Portuguese stock index fell 2.1%, Germany lost 1.5%, France 1.3% and even the strongest economy in the world – the UK – was down 0.7%.
Gold had ticked up a bit in previous sessions on Fed dovishness and last night added another US$6.90 to US$1335.40/oz. The 1335 level is a point of technical resistance, so a break-out could mean a bit more of a run. The US dollar became popular again, but the index only rose 0.1% to 80.12, and the US ten-year bond yield fell a couple more basis points to 2.53%.
Lost in the wash on Wall Street last night was the latest monthly US chain store sales release. Sales rose at an annual rate of 5.9% in June, making it 5.6% for the June quarter which is double the pace of the March quarter. American shoppers were all snowbound in the March quarter of course, but this is the sort of rebound economists have been looking for to justify 3% June quarter GDP expectations. A little more than a dozen chains make up this survey, but they’re all well known and the data does provide a gauge of consumer sentiment.
The LME had its first chance to respond to the Fed minutes last night but might have well not bothered. Half the metals went up and the other half down, and none by more than 1%. Spot iron ore rose US30c to US$96.90/t.
After nine down-sessions in a row for the oils, last night they finally posted a gain, for no other reason than they’d been down nine sessions in a row. Brent rose US54c to US$108.73/bbl and West Texas rose US96c to US$102.89/bbl.
The SPI Overnight fell 18 points or 0.3%. Could be another soggy day.
May housing finance and investment lending numbers are due out locally today.
Question: If you are a Pom, which of your two hated enemies do you support in the World Cup final? Perhaps such a question is only valid for those in countries that can actually play the game.
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