Daily Market Reports | Oct 28 2014
By Greg Peel
The Dow closed up 12 points while the S&P lost 0.1% to 1961 and the Nasdaq was flat.
And it was yet another strong session for the Australian market yesterday, with all sectors contributing fairly evenly except one, being materials, which was left behind as the iron ore price again slipped under US$80/t.
While Wall Street saw another positive session on Friday night, there was not a lot to drive the ASX200 yesterday except the momentum which has built since markets turned around two weeks ago. We have now bounced 6% since the October 13 low. One might argue it’s not so much a range of positives driving the rebound at present, but a lack of negatives. It would appear that Ebola fear is easing, although there is still much confusion and debate in the US, while the Australian government has battened down the hatches and cast West Africa adrift.
The best way to tackle an epidemic-threatening virus is to hide in the cellar and let others try to work on a solution.
The European bank stress tests provoked a relatively benign response across the globe. Mind you, every time the ECB carries out these stress tests the results are fairly benign, leading in the past to criticism the tests parameters are set to achieve a prescribed result. More faith is placed in Germany’s IFO survey of business sentiment, which last night showed a drop to 103.2 from 104.7 last month when economists had forecast 104.5. It’s the sixth monthly drop, highlighting the fear Germany may soon slide into recession.
While the result sent the German stock market down 1.0%, and France 0.9%, there is an element of the “bad news is good news” theme in the data that Wall Street is so fond of. The cornerstone of the eurozone economy has to date resisted all efforts suggested to reinvigorate European growth on both the fiscal and monetary fronts. The Germans remain staunchly pro-austerity and anti-spending, contrasting a growing push in Europe for governments to spend their way out of recession, and they are dead against any form of QE involving the zone-wide purchase of government bonds.
Perhaps if Germany does sink into recession, resistance might begin to falter.
Brazil’s incumbent Workers Party government has managed to hang on with victory by a whisker in the country’s election, leading President Rouseff to pledge to be more conciliatory towards the pro-business opposition party. The pledge did little to appease the Brazilian stock market, which plunged 14%.
Last night’s US earnings reports included Merck (Dow), which missed on revenue expectations and reduced guidance, leading to a 2% drop. Twitter reported after the bell and matched on earnings, but user growth concerned traders and its shares are currently down 8% in the after-market.
US pending home sales rose 0.3% in September, falling short of 0.8% expectations but better than the 1.0% fall seen in August.
External factors nevertheless made little difference to a Wall Street that last night was content to take a breather from recent volatility, and the surging rebound, and look to the Fed statement due on Wednesday night. The US dollar index saw a 0.2% fall to 85.53 as traders squared up, despite IFO-driven weakness in the euro. The US ten-year bond yield slipped a pip to 2.26% and gold fell US$3.30 to US$1227.70/oz. The Aussie is up 0.2% at US$0.8804.
Oil prices fell again last night as Goldman Sachs slashed its 2015 average forecast for West Texas Intermediate to US$75/bbl from US$90. But despite the impact this would have on US energy stocks, Goldman at the same time published a year-end forecast for the S&P500 of 2050, 4.5% above last night’s close, highlighting the solid boost to US consumer spending capacity provided by lower energy prices.
West Texas fell US55c to US$80.77/bbl and Brent fell US73c to US$85.48/bbl.
LME trading resumed in earnest last night following the LME Week disruption, with traders shuffling positions ahead of this week’s Fed meeting. All base metals were flat to higher except nickel, which fell 1%. Copper rose 0.7%.
Iron ore fell another US20c to US$79.60/t.
After a strong run on Bridge Street, a little bit of consolidation is overdue. The SPI Overnight closed down 13 points or 0.2%.
Wall Street has another session to trade through before Wednesday night’s Fed statement release, featuring more earnings reports and a raft of data releases including durable goods. This week is the busiest in the season for US earnings, with 150 S&P500 companies reporting.
Locally, there is another large batch of AGMs to be held today and another handful of resource sector earnings reports.
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