Daily Market Reports | Sep 29 2014
By Greg Peel
Friday on Bridge Street played out as expected, given a big fall on Wall Street, weaker commodity prices, a weaker Aussie, and heightened geopolitical risk. Throw in specific issues surrounding Australian banks – possible mortgage restrictions and increased capital requirements – as well as the blow-out on the Federal budget deficit and we’re left with an economy which is struggling to transition away from mining, particularly if the housing rebound is nobbled.
On the other side of the Pacific, economic data are improving, the US dollar is rising and US bond yields are stumbling higher. It all adds up to the interest rate differential between Australia and the US, and other major economies, narrowing, which undermines the value of Australia’s yield plays. It was another Sell Australia day in general on Friday, with the sectors containing the biggest caps the worst hit – financials, materials, healthcare, consumer staples and telcos.
But what, exactly, is going on on Wall Street at the moment? Friday night saw the Dow rebound 167 points or 1.0% while the S&P gained 0.9% to 1982 and the Nasdaq gained 1.0%. The Dow has now clocked five triple-digit moves in a row, the last four in opposite directions each session.
Uncertainty is one thing, given debate about specifically what the Fed’s stance is in the near-term, and the Fed’s data focus suggests the ups and downs of data will be reflected, if not amplified, in the stock market. But we are also approaching quarter-end, which for this round has a weekend and Jewish holiday squeezed in just at the death. We are likely seeing the usual argy-bargy of book-squaring and window dressing.
Friday night’s major data point was the second revision of US June quarter GDP, which came in at 4.6% compared to the previous revision’s 4.2% and the initial estimate of 3.9%. It would appear earlier assumptions the weak March quarter result was very much a function of the weather have proven accurate. The September and December quarters are expected to show an easing back in growth following this rebound but once again if we add it all up, why is there a zero interest rate?
Indeed the US ten-year bond yield rallied 2 basis points on Friday to 2.54%, although this was complicated by the announcement Bill Gross, founder of PIMCO, is jumping ship, just ahead of being pushed. Gross founded what is the world’s biggest bond fund and has always been outspoken in his views but this past year has been a very poor one for a fund which isn’t the biggest in the world for no reason. It seems incongruous that one man could move world markets but then if we look ahead to the day Warren Buffet puts up the Gone Fishin’ sign, we can appreciate Gross’ status in the bond world.
In the other US data release of Friday night, the Michigan Uni consumer sentiment measure held steady at the 84.6 level of a fortnight ago, up from 82.5 in August.
The strong US data were positive for the US dollar, and across the pond traders have begun to set themselves for this week’s ECB policy meeting, sending the euro lower. Draghi has continued to rant about doing whatever it takes and European data have continued to worsen but given the ECB introduced significant unconventional measures at its last meeting, it is unlikely anything more will be forthcoming at this meeting. The central bank will want to see how things play out. The US dollar index rose 0.5% to 85.64.
The Aussie subsequently fell 0.3% to US$0.8765.
Base metal markets were quiet on Friday night, with all metals posting very little movement bar nickel. Nickel fell 2% on increased LME stockpiles. Metal traders are looking ahead to this week when Chinese markets close for a week from Wednesday for the annual National Holiday.
Imagine if Australia Day lasted a week.
Iron ore was unchanged at US$78.60/t.
The US GDP revision possibly explains an US83c jump in West Texas crude to US$93.36/bbl while Brent was steady at US$97.01/bbl.
Gold lost US$3.10 to US$1217.50/oz.
The SPI Overnight closed up 9 points on Saturday morning, which in normal circumstances would be a disappointing response to a 167 point Dow rally. But these are not normal circumstances, and given the ongoing fall in the Aussie and the momentum of last week, we could still finish down again today. The September quarter nevertheless ends tomorrow so we may see volatility either way.
And speaking of economic data, this week is absolutely choc-o-block full of the stuff, globally.
Wednesday is the first of the month, so we’ll see manufacturing PMI results for Australia, Japan, China, the eurozone, UK and US. HSBC will offer its Chinese PMI tomorrow due to the week-long holiday from Wednesday. The manufacturing round will be followed by the service sector PMI round on Friday.
In the US, additional data include personal income & spending and pending home sales tonight, the Chicago PMI, Case-Shiller house price index and Conference Board consumer confidence on Tuesday, and construction spending and the ADP private sector jobs report on Wednesday. Thursday it’s factory orders, ahead of the trade balance and the all-important non-farm payrolls number on Friday. The market is looking for a little over 200,000 new jobs.
Japan will release industrial production, retail sales and employment data tomorrow, while in Europe, the eurozone flash CPI is due tomorrow ahead of Thursday’s ECB meeting. The Bank of England will also meet on Thursday, and express relief that Scotland is still on board.
It’s a big week for data in Australia.
Tomorrow sees private sector credit and tomorrow the manufacturing PMI, Rismark house prices and retail sales. Thursday it’s new home sales, building approvals and the trade balance and Friday the services PMI.
Rudi will appear on Sky Business on Wednesday at 5.30pm and on Thursday at noon and again between 7-8pm for the Switzer Report.
For further global economic release dates and local company events please refer to the FNArena Calendar.
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