Daily Market Reports | Dec 23 2014
By Greg Peel
The Dow rose 154 points or 0.9% while the S&P gained 0.4% to 2078 and the Nasdaq added 0.3%.
Another day, another hundred points on Bridge Street. The somewhat belated Santa Rally has been driven mostly by bargain hunting in heavily knocked down resources stocks, dragging other sectors along in an end-of-year push for better looking returns. Energy led the charge yet again yesterday, up 4.1%, while materials were up 2.6% and everything else gained 1.5-2% except utilities.
Yesterday’s 100 point rally pretty much represents the ASX200’s total rally for 2014. As to whether the index can close in the green for the year next week is yet to be seen, with selling returning to oil, iron ore and metals last night and dealing rooms quickly emptying out ahead of what for most will be a summer break.
Friday night saw a big bounce in oil prices after an initial fall in response to confirmation from OPEC there was no chance of a production cut. The Saudis were at it again on the weekend, blaming non-OPEC producers for being a disorganised rabble with regard global supply management. But Friday was all about the nervous shorts getting out and everyone else standing back, it would seem, given selling returned to the oil exchanges last night. West Texas fell US$1.78 to US$55.35/bbl and Brent fell US$1.86 to US$60.19/bbl, both down 3%.
The big talk on the Nymex last night was nevertheless about the US natural gas price, which fell 9% to US$3.14/mmbtu. The fall was triggered by a report from US meteorologists suggesting that in sharp contrast to last year, America is in for a relatively warm winter.
As the price of oil has fallen, the US natural gas price has also slipped but until last night the fall has been far less dramatic. US gas is a closed-shop commodity, produced and consumed in the US and not (as yet) exported. Thus the global price of oil is not as much of an influence over the price of gas in the US, unlike Australia where LNG export contracts are priced on an oil-indexed basis.
Those stunned rabbits over on sister exchange Comex suddenly snapped back into life last night, sending gold down US$19.50 to US$1175.90/oz. Gold traders blamed falling oil prices, which is fair enough given lower oil means lower inflation and gold is supposedly the inflation hedge, but why has it taken this long for gold to respond? It had been sitting around the 1200 mark for ages while the oil price was tanking.
A stronger US dollar was blamed last night as well, up 0.1% to 89.73, but that’s really just an excuse. The greenback has been both down and up of late as Wall Street has first plunged and then sharply recovered during the oil price rout, with a bit of help from the Fed. The argument still rages as to whether low oil prices are a God given blessing for the US economy or whether the US will be impacted as the economies of oil export countries quietly implode.
And the argument rages as to just how low oil can go, with many believing momentum currently remains to the downside.
And where go-eth oil, go-eth metals at the moment. All base metals bar nickel were lower last night, with aluminium falling 1.5%. And having risen US$1.50 on Friday night, last night iron ore fell back that same US$1.50, to US$68.00/t.
What the fall in commodity prices has affected in the US stock market is a clear divergence among sectors. Here we are at a new all-time high for the Dow, despite Big Oil providing a drag. If we look at last night’s surge to that new high, we note the broader market did not join in the fun. The big caps were up net 0.9%, but the S&P500 only managed 0.4%.
Weighing on the broader market were last night’s existing home sales numbers for November, which showed a much greater than expected fall of 6.1% to a six-month low. Yet the Chicago Fed national activity index rose to a better than expected plus 0.73 from plus 0.31 in October.
So 2015 will be a year of the sector, and the stock, and not of the index. 2014 was all about the end of QE, and 2015 will be all about the first Fed rate rise.
As of yesterday the ASX200 had risen five sessions in a row. We may see an end to that run today, with the SPI Overnight down 16 points or 0.3%.
Well, that’s it from me for the year. Thanks for reading. FNArena closes today for a Christmas break and will return on January 14, although the website will remain fully accessible. I will be returning on January 21 to take the Overnight Report on another action-packed adventure in 2015.
Merry Christmas to all, have a safe and enjoyable break, and I’ll look forward to catching up again in the New Year.
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