Daily Market Reports | Nov 11 2014
By Greg Peel
The Dow closed up 39 points or 0.2% while the S&P gained 0.3% to 2038 and the Nasdaq added 0.4%. The Dow and S&P have again made new highs.
Materials and energy were the only sectors to post rallies on the local market yesterday, however the net ASX200 fall of 25 points is mostly attributable to Westpac going ex-div. If we assume that Friday’s strong rally, which included a big kick towards the close, represented a big buying order we can still consider ourselves to be in the gravitational pull of the 5500 technical level, looking for firm direction.
Yesterday’s home loan data provided little in the way of surprise, and more grist for the macro-prudential mill. The value of loans to owner-occupiers rose by 1.4% in September, to be 6.7% higher year on year. The value of loans to investors rose 3.7% to be 23.7% higher. Total lending is up 13% year on year.
Loans to investors now exceed what used to always be the biggest loan segment – loans to owner-occupiers trading up, note the economists at CBA. The third group, first home buyers, has reduced in size significantly over the past two years. Bear in mind that 30% of all home purchases are for cash. The good news, at least, is that growth in loans for new construction is up 11.7% year on year. This is a positive for the economy and for housing supply, being currently the only way to balance the demand-side surge until the RBA sees fit to raise rates.
Or endorses APRA implementation of macro-prudential controls in the form of increased capital requirements for bank mortgage books, which would raise bank lending rates.
Beijing announced yesterday China’s official CPI remained steady at a five-year low 1.6% annual. The yin and yang of this low rate is a balance between indications of slower economic growth but plenty of room for monetary stimulus.
It was a quiet start to the week on Wall Street. There are no data releases of any importance until Friday and tomorrow night is the Memorial Day holiday. Banks and the bond market are closed for the holiday and while stock and commodity markets remain open, participation is typically low. Bond traders have turned it into a four day weekend.
The weekend gave the market more time to mull over Friday night’s US jobs report. The reaction on Friday was initially a sell on the “miss” but eventually a buy on a wider assessment, at least for the stock market. Big jumps in gold and US bonds (lower yield) and a fall in the US dollar implied those markets were more inclined to take the “miss” on face value and assume the Fed would not be in any rush to impose the first rate rise.
In a quieter session last night, the stock market reconfirmed its assessment of what was arguably a Goldilocks jobs report that was not too strong, as might hurry up the Fed, but not too weak, as might bring into question the economic recovery. It would appear the other markets decided that indeed, those stock guys might be right for once. Last night gold fell back US$21.00 to US$1148.80/oz, basically wiping out Friday night’s gain, and the ten-year yield rose 5 basis points to 2.36%, ditto. The US dollar index is up 0.3% to 87.82.
The case for gold is an interesting one at present. Beyond the influence of central bank money printing shenanigans, at the end of this month the people of Switzerland will vote in a referendum to decide whether the Swiss central bank should hold 20% of its reserves in the form of gold. Only in Switzerland could a question of monetary policy be put to the electorate, underscoring the place gold holds in the Swiss psyche. The RBA was certainly in no hurry to defer to the Australian populous when, under instruction from the Fed, it sold half the nation’s gold reserves back in the late nineties.
It is no surprise the Swiss National Bank is a major holder of gold, but it has sold a lot of its bullion into the gold rally of the past decade so as to not overweight its reserve portfolio with a single, arguably outdated, asset. But were the vote to be a “yes” in the referendum, the SNB would have to start buying once more, significantly. No major economy holds anything like 20% gold. (See Switzerland And Significant Gold Price Upside; October 24)
Another commodity to reverse Friday night’s move last night was oil, with West Texas falling US$1.08 to US$77.37/bbl and Brent falling US71c to US$82.26/bbl. The falls were largely due to a reiteration from the OPEC secretary general that the bloc would not be cutting production in order to boost prices, when it meets next month. Abdullah al-Badri told oil markets not to panic, and that the situation would “eventually resolve itself”.
Base metals were again playing ups and downs last night, with aluminium slipping again, copper losing some ground and nickel falling 1%, while lead and zinc crept higher.
Spot iron ore was unchanged at US$75.50/t. I might take this chance to point out that FNArena always tracks spot prices and not futures prices where applicable, which is particularly the case for gold, copper and iron ore. If you see a report suggesting the iron ore price went up when FNArena said it went down, that report is quoting the futures price. (Note that oil prices are futures prices given there is no one “oil” spot price.)
The Aussie has come back 0.2% to US$0.8615 on the US dollar turnaround.
The SPI Overnight closed up 13 points or 0.2%.
Japan releases trade data today while locally we see the monthly NAB business confidence survey and a quarterly index of house prices. Incitec Pivot ((IPL)) will release its FY14 result.
A quiet night is likely for Wall Street tonight, barring anything left of field, as armistice remembrance rolls across the globe.
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