Daily Market Reports | Oct 08 2014
By Greg Peel
The Dow fell 272 points or 1.6% while the S&P lost 1.5% to 1935 and the Nasdaq dropped 1.4%.
So what on earth happened on Bridge Street yesterday? The ASX200 opened at 10.00 and at 10.09 hit its high of the day, up 26 points, before plunging into an abyss. At 11.43 it appeared we may have found the bottom at down 50 until bang! down we went precipitously to an 84 point fall at 11.55. But there we bounced like a super ball to be down 63 points only eleven minutes later. And an afternoon’s grafting saw a close down a mere 8 points. If you only followed the close-to-close you would have assumed an uneventful day.
There was some rumour going around the RBA was preparing to change the wording of its policy statement, due at 2.30pm, to hint at a possible rate rise to come. Fair enough – that could explain the selling, but I’ve never known the RBA to leak. Ever. The bounce at midday clearly had nothing to do with the fact the RBA changed nothing at all. That didn’t happen for another two and a half hours. Foreign sellers poured in again yesterday morning, and domestic bargain hunters moved in through the afternoon – that’s been the current theme – but the period from 11.55 to 12.06 (down 50, down 84, down 63) looks very wrong to me.
Fat finger, high frequency, or something else? Just as well I’m not a conspiracy theorist.
It may all mean little today anyway with the Dow down 272 points and Europe having been taken to the cleaners. The SPI Overnight is down 60 this morning. It is nevertheless unusual for foreigners to unleash another wave of selling after the Aussie had bounced a percent. They usually sell when the Aussie falls.
On that note, the RBA did not make any acknowledgement of the past month’s fall in the Aussie in its statement yesterday. The paragraph on the currency was unchanged, to wit:
“The exchange rate has declined recently, in large part reflecting the strengthening US dollar, but remains high by historical standards, particularly given the further declines in key commodity prices in recent months. It is offering less assistance than would normally be expected in achieving balanced growth in the economy.”
The lower Aussie could be put up as an argument as to why the RBA might now have some room to consider a rate rise targeted at cooling the investment property bubble. Hence yesterday’s unchanged stance clearly provided support for stocks, particularly the banks, towards the end of yesterday’s session.
The RBA is nevertheless unlikely to use the sledge hammer of a rate rise to target one specific segment of the overall Australian economy. Yesterday we saw the construction PMI for September showing a jump to 59.1 from August’s 55.0. With manufacturing and services still wallowing in contraction, construction is the one segment providing any positive against the negative of the mining investment retreat. Kill property with a rate rise, and you kill construction. Thus you kill the economy.
The IMF cut its global growth forecasts, again, last night. Citing weakness in the eurozone, Japan and Brazil, in particular, the Fund dropped its 2014 growth forecast to 3.3% from July’s 3.4%, and 2015 to 3.8% from 4.0%. The IMF typically operates in a separate time and space continuum that runs about six months behind the real one. IMF economists are hoping the Rabbitohs can win their first premiership since 1971. But for some reason, markets still respond to IMF forecasts as if God has spoken.
The IMF numbers coincided with last night’s release of Germany’s August industrial production growth number. It fell 4.0%, having risen 1.6% in July, and against forecasts of a 1.5% fall. It’s the biggest monthly fall since January 2009. Put the two together and Europe was taken to the cleaners last night. The German DAX fell 1.3% and the French CAC fell 1.8%. The UK’s industrial production result also disappointed with a mere 0.1% growth. London’s FTSE fell 1.0%.
Sell orders were transferred across the Atlantic to help the Dow open down around 150 points. The average bounced around that level for most of the session and there was some hope the bargain hunters would make their entry in the afternoon, as has often been the case of late. But not this time. This time the selling accelerated in the final hour.
Welcome to October.
Given the Dow now bounces around on 200 point moves with seemingly gay abandon, last night’s drop was nothing too remarkable. Wall Street is still only about 4% off its highs. More notable, nevertheless, is the US ten-year bond yield. It fell 8 basis points to 2.35%. Fed rate rise? Kidding aren’t you?
That sentiment is further conveyed through the Aussie dollar, which is up another 0.6% to US$0.8814, with the US dollar index relatively steady last night at 85.66. Gold is also relatively steady, at US$1210.10/oz.
Energy demand relies on global economic growth, so on the IMF report Brent fell US$1.09 to US$91.91/bbl and West Texas fell US$1.65 to US$88.83/bbl.
It was still very thin on the LME last night, but the Chinese are back today so things should pick up. All was quiet last night except in the metals du jour, aluminium and nickel, which both gained 1%.
Iron ore is back, with buying. The iron ore price is up US$1.10 to US$80.00.
As noted, the SPI Overnight closed down 60 points or 1.1%. So hang onto your hats again today, although one feels almost anything could happen.
With China back today, HSBC will release its version of China’s services PMI. The minutes of the last Fed meeting will be released tonight and will be pored over for clues of just how the various FOMC members are seeing the US economy.
Inflation is yet to become an issue in the US. In Europe, the issue is deflation. The Bank of Japan could tell the ECB all about what it’s like to fight deflation. But then the BoJ is not having a lot of success overcoming the issue right now either, despite the backing of Abenomics.
Rudi will appear on Sky Business this evening at 5.30pm.
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