Daily Market Reports | Aug 19 2014
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By Greg Peel
The Dow rose 175 points or 1.1% while the S&P gained 0.9% to 1971 and the Nasdaq added 0.8%.
It was another uncertain session on Bridge Street yesterday as the ASX200 opened higher, fell back, and finally rallied gradually to a close of up 20. Despite results season now being in full swing downunder, it has been difficult to take any large bets when the backdrop of geopolitical uncertainty suggests caution.
Four-way talks between Russia, Ukraine, Germany and France in Berlin which began over the weekend were enough to signal the potential of a resolution but the latest news is those talks have reached an impasse, stumbling on the twin conditions of the Russia separatists laying down their arms and Kiev calling off the Ukraine army.
While Bridge Street may be more inclined to watch and wait, over in Germany the volatility continued last night. We recall that the DAX rallied1.1% on Friday morning when Putin called for calm and fell 1.4% in the afternoon on news of Russian military convoys being fired upon. Last night the DAX jumped 1.7% on the assumption the Berlin peace talks at least meant progress.
It was a step-jump adjustment for the DAX, not a rally. The index opened up around 1.7% and stayed there all session. Wall Street pretty much followed suit, rising strongly from the bell before plateauing mid-morning around the day’s highs.
Adding to the geopolitical risk-off sentiment was news US airstrikes in Iraq were paying off and the Kurds had retaken the Mosul dam.
Those who know Putin nevertheless suggest there is no way he will simply back off and give up. At the moment, he is somewhat cornered. His imperialist incursions have seen his popularity jump from 50% to 88% in Russia, but no doubt he was hoping the rest of eastern Ukraine would fall as meekly as Crimea did. He did not count on the Ukrainian military overcoming the Russian separatists, and he knows that full scale war would lead to an escalating Russian body count which would quickly see his popularity plummet.
This story is not over. But meanwhile, financial markets roll on.
Last night’s monthly measure of US housing market sentiment came in at 55, up from 53 in August, and beating expectations of a steady 53 read. It’s the highest level in seven months and the second month of plus-50 results, implying optimism.
The news was largely lost in the wash of the geopolitical rally nonetheless, which took the Nasdaq to a new post dotcom bubble high and the S&P500 within a mere 1% of its all-time high. So there, again, goes the correction that wasn’t.
If the German stock market has been a yo-yo these past sessions, matching that volatility have been oil prices, particularly that of Brent. Last night was another down-night on the supposed easing of tensions, with Brent falling US$1.67 to US$101.86 to mark a more than twelve month low. West Texas fell US56c to US$96.62/bbl.
Geopolitics has also been very much felt in global bond markets. Last night the German ten-year yield recovered to 1.02% from Friday’s 0.95% and the US equivalent rose 5 basis points to 2.39%.
Gold, on the other hand, seems to have been marching to the beat of its own drummer, occasionally moving in correlation with its supposed safe haven status but mostly befuddling with contrary or non-moves. Last night gold fell US$7.20 to US$1297.30/oz.
Those looking to park their life savings in gold when the Russians invade might like to think twice when clearly the metal is more affected by physical demand out of Asia and Fed policy as primary drivers.
The LME has largely been a passive observer these last couple of sessions, with base metal prices remaining relatively steady as other commodities whip around. Last night the metals were mixed on small moves.
Iron ore fell US10c to US$93.30/t.
The US dollar index is up 0.2% to 81.56 but the Aussie is again steady, at US$0.9325.
The SPI Overnight closed up 25 points or 0.5% which, if accurate, would suggest we push back through 5600 today.
It may come down to earnings results nevertheless, and today is the first of a run of mega-days on the reporting front. BHP Billiton ((BHP)) will be the headliner, but Amcor ((AMC)), Arrium ((ARI)), CSR ((CSR)), Dick Smith ((DSH)), Insurance Australia Group ((IAG)), Oil Search ((OSH)) and Sonic Healthcare ((SHL)) are also among the many more.
Note that the market is quite short Dick, and very short another of today’s reporters, Monadelphous ((MND)).
The RBA minutes will also be released this afternoon, but they will not change anyone’s life.
Both the UK and US release CPI data tonight, which will be critical to respective central bank consideration.
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CHARTS
For more info SHARE ANALYSIS: AMC - AMCOR PLC
For more info SHARE ANALYSIS: BHP - BHP GROUP LIMITED
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For more info SHARE ANALYSIS: IAG - INSURANCE AUSTRALIA GROUP LIMITED
For more info SHARE ANALYSIS: MND - MONADELPHOUS GROUP LIMITED
For more info SHARE ANALYSIS: SHL - SONIC HEALTHCARE LIMITED