Daily Market Reports | Sep 30 2014
By Greg Peel
The Dow closed down 41 points or 0.3% while the S&P lost 0.3% to 1977 and the Nasdaq fell 0.1%.
As I suggested yesterday, there is no reason for the Australian stock market to slavish follow the lead of the US stock market under current circumstances and indeed, money exiting Australia is mostly flowing to the US, suggesting complete decoupling. Thus yesterday we saw the ASX200 down 54 points on the opening rotation despite a 167 point rally in the Dow.
In very simple terms, the direction of the Australian market is presently being determined by the direction of the Aussie dollar and that trend remains to the downside. It didn’t stop the bargain hunters trying to give it a red hot go yesterday morning however, and by midday it appeared we might even finish in the black. But stick your head up above the trench right now and you’re likely to get a bullet in the helmet. By the closing bell we were almost back at the lows again, on across the board selling.
Fuelling the current Sell Australia theme yesterday was a 1.9% fall in the Hang Seng index as tear gas was fired on the otherwise peaceful pro-democracy protest in Hong Kong. The number of protesters in the city’s Central district could just about fit into the Sydney Olympic Stadium in a country of 1.3bn, or whatever we’re up to now, but given Hong Kong is China’s westernised financial hub the implications are symbolic.
On the micro level, the Golden Week holiday period begins tomorrow and typically mainlanders descend on Hong Kong for a shopping spree a la Western Christmas. It appears Hong Kong’s high-end retailers will likely be closed for business this year which will have immediate implications for the domestic spending element of China’s GDP. On the macro level, Beijing will not bow to “Western” style democracy (indeed official news services are implying the protests are Western-driven), wishing to prove to the world centralised capitalism is the superior model, but nor would the government risk sending in the tanks, as it did at Tiananmen square in the 1980s, and risk 25 years of social and financial reforms and a subsequent torrential outflow of foreign investment.
So what to do? It’s a tough one, and the Hong Kong elections, over which the students are protesting, are still a whole three years away. So now we can add Hong Kong to the current list of exogenous issues, alongside Ukraine, IS and Ebola.
Which is why the Dow opened down 178 points last night. That was the low, nevertheless, and the US indices spent the rest of the day grafting back to regain the bulk of opening losses. While Australia is directly impacted by any slowdown in China, the implications for Wall Street are mixed. The Hong Kong situation throws up potential disruption to US investment in China but the uncertainty only serves to underscore the America’s current position as the only real option for safe global investment. In a post-GFC world, the irony is exquisite, but for that we can thank the Fed.
To that end it is notable US bonds found renewed buying last night, with the ten-year yield falling 4 basis points to 2.49%. US yields are stuck in a now long-established range, balancing the possibility of a Fed rate rise against problems all over the rest of the world.
The US dollar index was steady at 85.63 last night but the Aussie is down another 0.5% to US$87.18, suggesting more of the same on Bridge Street today.
It was a mixed session on the LME last night but understandable. Global metals trading becomes a bit rudderless when China is not involved so squaring up ahead of the Golden Week holiday saw rallies of up to 1.5% for aluminium, copper, lead and zinc and falls of up to 1% for nickel and tin. Come tomorrow night, the LME will become deathly quiet.
The iron ore price fell US90c to US$77.70/t with a day’s trading left before the shutdown.
Last night’s main US data release was that of personal spending and income. Spending rebounded 0.5% in August after a flat July and the implicit 4.1% annualised pace of growth is stronger than in prior months. Income growth nevertheless continues to lag, at 0.3% in August, providing the Fed with another reason not to panic.
The jump in spending was cited as the reason West Texas crude rose another US94c to US$94.30/bbl last night while Brent gained US19c to US$97.20/bbl.
Gold is relatively steady at US$1215.90/oz, which seems surprising given Golden Week is so-called for a reason and Hong Kong jewellers, who would normally by now be doing a roaring trade, are trapped behind the barricades.
The SPI Overnight closed down 12 points, for what it’s worth.
Japan will provide an August data dump today while HSBC will release its Chinese manufacturing PMI for September a day early ahead of the holiday. Tonight the flash estimate of eurozone CPI will be released, the UK will revise its June quarter GDP and in the US, house price and consumer confidence are due along with the Chicago PMI.
Australia will see private sector credit data today and Sundance Resources ((SDL)) will report full-year earnings.
It is interesting that students in Hong Kong should be protesting over Beijing’s intention to choose the candidates for the 2017 “democratic” election. I seem to recall Australia failed to vote for a Republic early this century due to rejection of the option of a president appointed by parliament.
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