Daily Market Reports | Jan 28 2015
By Greg Peel
The Dow closed down 291 points or 1.7% while the S&P lost 1.2% to 2033 and the Nasdaq dropped 1.6%.
Bridge Street continued its rapid climb yesterday in line with global markets, although two sectors missed out on the spoils. They were of course energy and materials. Yet with no participation from the resources sectors, we’re back at our old friend 5500. Ah, so many memories. This level may once again prove a fortress nonetheless, given Wall Street’s performance last night.
It was forecast to be a winter snow storm of historical proportions and for much of the New England area and points north of New York City, it was. But the Mayor of New York was looking a little po-faced last night when Juno largely skirted Manhattan, leaving a huge bill for the city in unnecessary precautionary measures. Most Wall Street workers stayed at home in anticipation anyway, meaning volumes on the exchanges were low and a lot of those trades were being conducted from home.
This did not mean a quiet session however – quite the opposite. Wall Street has been exhibiting high levels of intraday volatility throughout January while largely running on the spot, suggesting a good deal of confusion and uncertainty with regard macro and microeconomic considerations and monetary and geopolitical influences. In other words, no one much knows what the hell is going on. Is low oil good or bad? Is the strong greenback good or bad? Should we worry about Greece? About Russia-Ukraine? Will the ECB’s policy work? Is the US economy strong or not?
President Obama insisted it was strong, just a week ago, but last night’s US data releases were troubling. The Conference Board’s monthly measure of consumer confidence shot up to 102.9 from 93.1 in December, well ahead of forecasts, but this was dismissed as simple “price of gas” euphoria. Sales of new single-family homes rose 11.6% in December to a six-year high, which is good news, but the Case-Shiller 20-city house price index showed a 4.3% year-on-year gain in November, and that’s the slowest pace in two years. And then came durable goods.
For some time economists have been expecting that the end of QE in the US would coincide with a long-awaited rise in corporate capital expenditure, as the ghosts of the GFC fade away. The big end of town is very cashed up. But with new durable goods orders falling 3.4% in December when economists had forecast a 0.1% rise, marking the fourth decline in five months, the expected capex wave is just not happening.
Durable goods are an important economic factor in Fed monetary policy. We spent most of late last year changing our minds about exactly when the Fed might first raise its cash rate, and by Christmas had largely settled on March-June of this year. But since then, global bond rates have tumbled as global disinflation has taken hold, exacerbated by plunging oil prices, and the ECB has sent the greenback soaring with its shock & awe stimulus. Last night Morgan Stanley economists decided the first Fed rate rise would indeed be in March – of 2016.
Which all just adds to the aforementioned confusion. The Fed will release its first policy statement for 2015 tonight, and for once no one is really particularly sure what it’s going to say.
The fall in oil/rise in the dollar story was very much evident in US December quarter earnings releases last night. Caterpillar posted a big miss, citing the lower oil price as the driver. Those big Tonka toys might use lots of fuel, but the energy industry is a major buyer. Microsoft posted a shocker, and Proctor & Gamble also surprised to the downside, with both companies bemoaning the strong dollar. All three are Dow stocks.
And so it would seem weak data and earnings results stopped Wall Street in its tracks last night. Throw in low volumes given fewer traders and lounge chair trading from others and the scene was set for a bit of a rolling pullback. At 11am the Dow was down nearly 400 points. A remarkable comeback was then staged, such that the average was only down 40 points at 2.30pm, but then the sellers regrouped.
The weak durable goods number did have its impact on the greenback, sending the dollar index down 0.8% to 94.04. The yield on the US ten-year bond did fall below 1.80% but later recovered to be unchanged at 1.83%. Gold reversed its fortunes nevertheless, regaining Monday night’s losses with a US$15.00 rise to US$1294.30/oz. The Aussie is 0.3% higher at US$0.7939.
The US durable goods result was not well received on the LME. On Monday night copper shot up on a rumour the Chinese were building strategic reserves, but last night the red metal plunged 3% on the US data. Aluminium, tin and zinc all fell 1%.
Iron ore is down another US50c to US$62.80/t.
It was an up-day for the oils however, once again suggesting a bottoming pattern may be forming. The Saudis appeared to buckle just slightly last night when the Aramco chief suggested Saudi Arabia could not balance crude markets on its own, that investment in new global supply is important (see: US shale), and that US$45-55/bbl should be the low. But he also said OPEC would not alter its production quota.
Either way, West Texas crude rose US68c to US$45.90/bbl and Brent rose US92c to US$49.18/bbl.
The SPI Overnight fell 29 points or 0.5%.
Australia’s December quarter CPI is due today, which the RBA will be keenly watching. Economists are forecasting a pullback to 1.8% from September’s 2.3%.
The Fed will release its latest policy statement tonight.
All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit. Click here. (Subscribers can access prices in the Cockpit.)
(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)
All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com
