Daily Market Reports | Sep 04 2014
By Greg Peel
The Dow closed up 10 points while the S&P lost 0.1% to 2000 and the Nasdaq fell 0.6%.
Yesterday’s Australian GDP number held no surprises. Following the release of various June quarter constituents this past week, economist consensus had a 0.4% quarter on quarter rise for 3.0% annual growth. Thus 0.5% and 3.1% went down as a “beat”, although they are pretty much in line with earlier consensus.
The drop from 1.1% qoq growth in March to 0.5% in June can clearly be attributed to the mining sector, in regard to both investment (capex) and commodity prices (terms of trade). The non-mining sector showed modest growth, which is encouraging, albeit not yet enough to fully offset the mining decline.
All up, yesterday’s numbers were right on the money with regard RBA expectations, suggesting no change to the current monetary policy stance. Tell that to the forex cowboys, who on Tuesday sold the Aussie off 0.6% on the lower terms of trade and yesterday bought it up 0.8% to US$0.9346 on the supposed GDP “beat”.
Australia’s service sector PMI rose to 49.4 in August from 49.3 in July, but more importantly, China’s official service PMI rose to 54.4 from 54.2 and HSBC’s equivalent leapt to 54.1 from 50.0. Having posted a strong manufacturing number, Japan was disappointed with a services fall to 49.9 from 50.4.
Yesterday’s data had little impact on the ASX200. The index opened lower from the bell, reflecting ex-divs for BHP in particular, along with AMP and a few others, and immediately recovered that adjustment plus a bit more before settling back to the flatline. The GDP and China data made little difference in the end, with markets across the globe now focused on central bank meetings over the next 24 hours, and also the US jobs number on Friday night.
And late in the day news hit the wires of a ceasefire being agreed to in Ukraine. By the time this news hit evening bulletins on the east coast, there was some confusion. Ukraine said there was a ceasefire and Russia said there wasn’t.
It didn’t seem to matter to Europe that there was any confusion. Even a hint of peace is enough. Thus the French CAC rose 1.0% and the German DAX rose 1.3%. The momentum carried over into Wall Street to send the Dow up 84 points from the opening bell, but as trading wound down in Europe, the US indices, as has become the pattern, retreated from late morning.
It was at that point the confusion with regard the ceasefire came to a head. In the wash up, Ukraine said it had negotiated a ceasefire with Russia but Russia said don’t look at us, we’re not firing. In other words, Ukraine has negotiated a ceasefire with the Russian separatists, not the Russians per se, if that’s what they’ve managed to do. Typical Putin spin. Either way, talk is of a proper pow-wow to be held on the weekend at which, the world hopes, the peace pipe can be passed around.
Don’t hold your breath.
In the meantime, Wall Street is indeed holding its breath ahead of today’s Bank of Japan policy meeting and tonight’s ECB policy meeting. The Dow and S&P thus closed flat, with the Nasdaq’s fall entirely reflecting a 4% drop in Apple shares. Apple is reeling from the celebrity nude selfie scandal (and let’s face it, we’re all a bit miffed when all our own nude photos are handed around willy-nilly, so to speak), and one broker put a Sell on the stock ahead of next week’s supposed launch of Apple’s new Dick Tracy watch. Many are sceptical of success.
Returning to service sector PMIs, the eurozone slump continues with a services PMI slide to 52.5 from 53.8, while the UK, which was lamenting lost momentum in its manufacturing sector two days ago, posted a rise to a soaring 60.5 from 59.1.
The US is running a day late this week, so its PMI is out tonight. Meanwhile, last night saw a record 10.5% jump in July factory orders. Factory orders are closely tied to durable goods orders however, so if we recall those big orders for a new Boeing plane and remove them, factory orders ex-transportation fell 0.8%, which was as forecast.
The big talking point of the day was nevertheless August vehicle sales, which at 17.2m seasonally adjusted represents the best result since 2006. Automakers across the board recorded sales increases, and trucks were the prime mover, but there is some concern emerging with regard the rising level of auto financing behind these sales, based on current low interest rates.
There is talk of mounting “sub-prime” auto loans.
The Fed Beige Book was released last night but was a fizzer. The central bank’s anecdotal assessment remains one of “modest to moderate” growth, as it has been for yonks, and none of the 12 regions registered any notable change.
Movements outside of stock markets last night all reflected ceasefire speculation. On Tuesday night oil traders were expecting new sanctions against Russia, which would further cripple Europe, and sold the oils down a couple of dollars each. Last night’s ceasefire talk had Brent rebounding US$2.02 to US$102.36/bbl and West Texas up US$1.85 to US$95.11/bbl, leaving many with whiplash.
Base metal markets responded in complete contrast. No sanctions imply no potential supply shocks, hence all metals were down bar nickel, with copper falling 0.8% and aluminium 1.2%. Nickel, on the other hand, responded to a senate proposal in the Philippines to take a leaf out of Indonesia’s book and ban exports, and jumped 3%.
Gold rebounded only US$4.00 to US$1269.40/oz after Tuesday night’s big fall while the US dollar index slipped back 0.1% to 82.86. The US ten-year bond yield slipped one basis point to 2.41%.
The bad news for the local market today is that the iron ore price has fallen through its 2012 low, emphatically, with a US$1.00 drop to US$85.70/t.
The SPI Overnight closed unch.
Today the Bank of Japan will hold a policy meeting and the suggestion is maybe something new will be announced on the stimulus front, given the Japanese economy’s disappointing dead cat bounce out of its sales tax hike malaise. But the real action will come tonight when the ECB meets.
Or not. The golden rule of ECB meetings is the more the world expects Draghi to do something, the less likely he is to respond. Sure, he flagged QE again at Jackson Hole, but he is the master of talking markets up (or down, in the case of the euro) for as long as he possibly can. My money is on more talk but no action.
Meanwhile we’ll see the July trade balance and retail sales data today locally, as we put the June quarter to bed and start concentrating on September.
In the US, the ADP private sector jobs number is due.
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