Daily Market Reports | Aug 25 2014
By Greg Peel
We saw another spike open to the upside for the ASX200 on Friday. Not sure what’s going on there. Someone trying to force technical triggers? We settled back again during the day, however, for another modest gain, but still another new post-GFC closing high.
A cautious approach was warranted heading into Friday night’s speeches by central bank heads Janet Yellen and Mario Draghi at the Jackson Hole symposium. Much would depend on what was said, it was assumed. But as a double-act, the show was a major flop. The audience yawned, and Wall Street posted its lowest volume session of the year, which in isolation is not unusual heading into what is officially the last week of the summer holidays.
Draghi suggested the ECB stands ready to take more unconventional action if needed. The audience suggested he could use some new material. We’ve all heard that one. However, it did seem as if the ECB president had been tuned into Glenn Stevens’ testimony to parliament last week, given a similar message. Draghi argued that the ECB could not solve the eurozone’s unemployment problem by itself. Increased flexibility in fiscal policy is required, he suggested, which implies it might be time to start loosening the austerity shackles.
Yellen was typically equivocal, which is polite word for “stuffed it I know”. Observers suggest she appears now to be shifting slightly to the hawkish side, nevertheless, but then she is coming from the position of being the most dovish member of the FOMC.
Yellen noted the US economy is moving closer to the Fed’s goals of full employment and stable inflation, and acknowledged debate within the committee is now “naturally shifting” to the theme of interest rates, but suggested there is “no simple recipe” for the central bank to follow. If labour market indicators were to move rapidly to the positive, or inflation were to suddenly shoot up, then the first rate rise could come sooner rather than later, she warned. But the Fed keeps track of no less than nineteen labour market indicators, not just the headline unemployment rate, and to date those indicators are suggesting the fall in the unemployment rate is overstating overall labour market conditions.
So it’s simply a case of watching the data. Thanks for that Janet, I think we’ll hit the bar.
Wall Street subsequently drifted off to a Friday-style close, pulling back slightly from the new highs posted during the week. The Dow closed down 38 points or 0.2% and S&P lost 0.2% to 1988 although the Nasdaq gained 0.1%.
The US ten-year yield remained steady at 2.40%. The US dollar index rose 0.2% to 82.33 and gold, having already dropped below the 1300 mark earlier in the week, rose US$4.40 to US$1280.40/oz.
Base metals were mostly mixed on small moves but the new metal of the hour, copper, rose 0.9%. There will be some consternation among Australian iron ore miners today following yet another big fall in the iron ore price, by US$1.80 to US$90.10/t.
The oils were slightly lower, with Brent down US39c to US$102.29/bbl and West Texas down US53c to US$93.37/bbl.
The Aussie is a little higher at US$0.9317 and the SPI Overnight closed down 10 points.
Despite lower oil prices, tensions between Ukraine and Russia, which had appeared to have abated earlier in the week, heightened once more on Friday. Russia’s convoys are rolling into Ukraine territory uninvited, drawing the ire of the Ukraine government and of NATO. It was a bit of a no-brainer that Putin was never going to back away quietly, but as to what’s going on right now is anyone’s guess.
There is also talk of the US extending its aerial attacks against the Islamist State beyond simply that of rescuing Christians from a mountain top. These issues are simmering in the background for financial markets that would rather just get on with it, and may yet be the cause of some sudden volatility if things escalate.
Meanwhile, the Australian earnings season rolls on. This week sees out the season for the larger caps, although there will be a flood of penny dreadful results right into September. On FNArena’s measure, the season is running at 28% beats to 26% misses, which compares to last season’s (February) final count of 30% to 22%. But the fact the market is posting new highs underscores what has been a well-received season to date.
There are too many stocks reporting this week to highlight so please refer to the FNArena Calendar (link below).
It’s a relatively quiet week in Australia economically but we will see a couple of important June quarter data releases ahead of next week’s GDP result. Construction work done is due on Wednesday and private capital expenditure on Thursday. Otherwise we’ll see monthly new home sales numbers on Thursday and private sector credit on Friday.
New home sales are also due tonight in the US along with the Chicago Fed national activity index. Tomorrow night sees all of durable goods, Conference Board monthly consumer confidence, the Case-Shiller and FHFA house price indices and the Richmond Fed manufacturing index.
We then jump to Thursday for pending home sales, and the first revision of the June quarter GDP result. The first estimate came in at 4.0% annualised, and the market is looking for 3.9% on revision. Friday sees personal income and spending, the Chicago PMI and the Michigan Uni fortnightly consumer sentiment measure.
The IFO business sentiment survey is due in Germany tonight while Friday will bring that important eurozone unemployment number, and the flash estimate of August CPI.
Japan will hope to be seeing a better start to the third quarter after a shocker of a second when it reports July inflation, production, unemployment and retail sales numbers on Friday.
Rudi will appear on Sky Business today at 11.15am and on Wednesday at 5.30pm.
For further global economic release dates and local company events please refer to the FNArena Calendar.
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