Daily Market Reports | Dec 16 2014
Our thoughts go to the innocent victims, their families and friends of the horrific attack at Martin Place, Sydney.
By Greg Peel
The Dow closed down 100 points or 0.6% while the S&P lost 0.6% to 1991 and the Nasdaq dropped 0.9%.
Good morning from Sydney, a city that will never be the same again.
Bargain hunters again moved into the Australian energy sector yesterday, helping to reduce what was a precipitous 85 point drop in the ASX200 from the open to a 33 point, or 0.6%, drop by the close. I noted last week that analysts had begun to suggest that not only had crude prices now fallen lower than the global demand-supply balance suggested, but energy company stock prices had fallen further than oil prices suggested. Bargain hunters moved in on Friday, and continued their campaign yesterday to provide a 1.5% gain for the sector.
It’s shaping up as a grim Christmas downunder, if consumer sector stock movements are anything to go by. Consumer staples in particular have been taken to the cleaners this past month and the sector was down another 1.9% yesterday, albeit competition concerns possibly top weaker retail spending concerns. Discretionary was down 0.6%, and one can only hope flagship stores in Sydney’s CBD shopping hub, a precinct which includes Martin Place, do not suffer dramatically from a reluctance from shoppers to visit the area.
Shinzo Abe’s election gamble has paid off handsomely, as the government has been returned in Japan with an increased and controlling majority. For Abe it will be back to the business of trying to reignite the Japanese economy, although the planned second sales tax increase, intended to address Japan’s excessive national debt, remains up in the air at present.
By contrast, grave fears are held for the fate of Greece. The snap Greek election may be held as soon as late this month, and the assumption is the government will be thrown out in favour of the anti-EU Syriza party. The long feared exit of Greece from the eurozone would presumably follow, sparking renewed fears of a domino effect.
That said, there are many who believe a “Grexit” should have been allowed to transpire years ago, before the EU started pumping money into the failed state. The incapacity of Greece to benefit from a currency devaluation has served only to send Greece into a state of economic limbo, unable to encourage investment while staring at years of repayments ahead. But there are also those who believe even the Syriza party will think twice before making any rash moves. EU officials are descending on Greece to try and avert a disaster.
The Greek threat and its potential ramifications sent European stock markets spiralling on Friday night and again last night. Last night saw the German DAX down 2.7%, the French CAC down 2.5% and the London FTSE down 1.9%.
Typically such weakness spills over into the morning session on Wall Street but this was not the case last night. After Friday’s big drop, buyers moved in from the open to send the Dow up 123 points but this proved only a brief turnaround. Once again the oil price started tipping over at this point, and mention has been made of the impact on investor sentiment of the news from the Sydney siege, which ended in tragedy just before the opening bell.
The tip-over in oil came in the wake of comments from the UAE oil minister that OPEC could sustain a slump in the oil price down to US$40/bbl, and the cartel will not consider meeting again for three months. Perhaps the likes of the UAE and the Saudis can weather such oil price pain in order to restore global supply order, but for the likes of Russia, Iran, Algeria, Nigeria and Venezuela, US$40 dollar oil spells disaster.
West Texas crude is down another US$2.14, or 3.7%, at US$55.45/bbl. Brent is down US$1.28 to US$60.53/bbl.
As oil tumbled once again so did stock prices, sending the Dow down 165 points at midday. Only then did the buyers return, but the afternoon session was one of heightened uncertainty. The Dow rallied back to be only 12 points down at 1pm, before weakness prevailed once more for a close down 100.
The US dollar managed to remain relatively steady last night nonetheless, at 88.43 on its index. The US ten-year yield clawed back a basis point to 2.11%. The Aussie is 0.3% lower at US$0.8221. Gold succumbed to fresh oil selling, dropping US$16.10 to US$1206.10/oz.
One should always be wary of the last two weeks of December trading on the LME, traders warn. This is when books are squared up and positions liquidated. The exit of “weak longs” was cited last night as the reason for a 1.9% drop in the copper price. Copper has only brought disappointment all year. All base metals traded lower last night bar tin.
Iron ore fell US10c to US$68.60/t.
Uncertainty on Wall Street was also heightened last night by some mixed US data releases. Industrial production rose 1.3% in November to mark the biggest jump since 2010, beating 0.9% expectations. The housing sentiment index ticked down to 57 from 58 but remains near its nine-year high. The disappointment came from the Empire State manufacturing index, which dropped to minus 3.6 to from plus 10.2, to mark the first negative reading in almost two years. Economists were shocked, but it must be said these regional Fed indices have become pretty volatile of late.
The SPI Overnight closed down 36 points or 0.7%.
It’s “flash” day today, which brings estimates of December manufacturing PMIs for China (HSBC), Japan, the eurozone and US.
The RBA minutes are out today and while the December meeting brought no apparent change to the central bank’s policy stance, it will be interesting to see to what level the imminent plunge in Australia’s terms of trade evoked discussion.
Have a coffee at a café today, and perhaps buy a Lindt chocolate.
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