Daily Market Reports | Feb 09 2015
By Greg Peel
Profit-Taking
The ASX200 finished in the green for the twelfth session in a row on Friday – which just doesn’t happen – despite some inevitable end-of-week profit-taking following such an almighty surge. The index opened up about 40 points to a nice, neat 5850 before falling back to be up only 9 points on the day, despite another 200 point Dow rally.
Sector movements were relatively even in the session, although the telco did cop some selling, and the story of strange bedfellows continued with the two biggest movers being energy and utilities, both up 0.7%.
US Jobs
There was also an incentive to square up locally ahead of Friday night’s all-important jobs report in the US. And oh how Tony and Joe would love a report like this one right now.
The US added 257,000 jobs in January, beating expectations of 230,000, but the big surprise was the extent of upward revisions to the previous two months’ numbers. Post revisions, which included a new result of 423,000 jobs for November, the three months November-December-January saw an average of 336,000 jobs created per month.
The US economy has added in excess of 200,000 jobs per month for twelve straight months, a feat not seen since 1994-95 (albeit the population has grown since).
But even more encouraging was the one element that had been missing during 2014 – wages growth. A lack of wages growth was a factor not missed by the Fed over the year, and cause for the market to suspect the FOMC would hold off its interest rate rise. But after declining in December, the average wage grew by 0.5% in January. The twelve months of 2014 saw net 1.9% growth but the twelve months to January has marked 2.2%. Still below the historical average, but three times the current rate of inflation.
The unemployment rate ticked up to 5.7% from 5.6%, but that’s okay because it represents increased participation.
Greek Downgrade
Suffice to say, Wall Street is back to assuming the Fed will act earlier rather than later on interest rates. No later than June and perhaps before then. Such anticipation was evident in the US bond market on Friday night, which saw the ten-year yield leap 12 basis points to 1.94%.
The US stock market seems now to have overcome its rate rise panic attacks and initially rose on the positive jobs numbers, although it was also a Friday in the US after a week of strong net gains.
Thus an excuse to take some profits was needed, and it came in the form of Standard & Poor’s downgrading Greek sovereign debt to B minus from B with a “negative” watch. "Liquidity constraints have narrowed the timeframe during which Greece's new government can reach an agreement with its official creditors on a financing program, in our view," the rating agency said in a statement. "We believe the potential uncertainties surrounding the timing and success of such an agreement risk exacerbating deposit outflows, depressing investment, and weakening tax compliance."
There remains disagreement on the Greece factor across global markets. There are those who believe a Greek exit, were that to eventuate, would destabilise the whole eurozone and others who suggest it would prove but a minor hiccup. Whatever the case, markets seem to worry about Greece one day and then quickly forget about Greece the next. As suggested, the credit downgrade merely provided Wall Street with a trigger on Friday for some profit-taking.
The Dow closed down 60 points or 0.3% while the S&P lost 0.3% to 2055 and the Nasdaq fell 0.4%.
Greenback Surge
Earlier last week the euro rebounded on the news the Greek finance minister had backed away from a debt write-off. On Friday night the US dollar index surged 1.2% to 94.66 on the jobs numbers but still actually closed slightly lower on the week.
It was enough to spook the gold bugs nonetheless, given gold fell US$29.10 to US$1235.30/oz and made the 1300 mark appear but a distant memory. The Aussie slipped a little to US$0.7799 on Saturday morning but is lower in this morning’s trade.
The strong greenback is not good for base metal prices, but then the US jobs report is a positive. LME traders are looking ahead to the Chinese New Year holiday and prices closed mixed on Friday night, with copper falling 0.8%.
Iron ore rose 70c to US$61.80/t on Friday to finish down US10c for the week.
Oil is playing its own frenetic game at this point so jobs and the US dollar were not as influential as another drop in the US rig count, announced on Friday, and a rejection of the latest peace deal to striking refinery workers. West Texas jumped US$1.53 or 3% to US$52.07/bbl and Brent rose US$1.43 or 2.5% to US$58.13/bbl.
The SPI Overnight closed up 3 points on Saturday morning.
China Slumps
There were positive developments in Europe over the weekend as the leaders of Germany, France and Russia agreed to hold talks over the ongoing Ukraine stand-off, with the suggestion of a demilitarised zone, a la Korea one presumes, being established as a concession. Were a deal to be brokered that would bring an end to sanctions against Russia, European markets would fly.
Meanwhile, China posted its weakest monthly trade numbers since 2009 on the weekend. December’s numbers had shown some promise and economists had forecast export growth of 6.3% in January, year on year, and import growth of 3.0%. As it was, exports fell 3.3% and imports collapsed 19.9%, according to official data.
Sharply lower import volumes of coal, oil and commodities (iron ore in particular, one presumes) were blamed, and of course the prices of all of the above have been very deflated. Imports from Australia fell by 35.3%, which no doubt is why the Aussie is lower this morning.
Economists are always wary, it has to be said, of Chinese numbers either side of the disruptive week-long New Year break. And of Chinese numbers generally, one might add. But this January result is no less than a shocker, and the pressure is now on Beijing to up the ante on monetary easing measures.
The Week Ahead
China will release inflation data tomorrow, which may provide the incentive for further PBoC action.
Europe will be in the frame later in the week when industrial production and trade numbers are provided and on Friday, the first estimate of eurozone December quarter GDP is released. The forecast is for 0.8% annual growth.
US data releases are uneventful up until Thursday, when retail sales and business inventories are released, followed by fortnightly consumer sentiment on Friday.
It’s a busy week in Australia, no matter who is prime minister. We have ANZ job ads today, NAB business sentiment and a December quarter house price index tomorrow, housing finance and Westpac consumer confidence on Wednesday and our own jobs numbers on Thursday.
RBA governor Glenn Stevens will speak at a function today and will speak before a parliamentary committee on Friday as is always the case post the release of a quarterly Statement on Monetary Policy, which we saw on Friday. The statement included a downgrade to Australia’s economic growth forecasts, which was basically flagged in Stevens’ policy statement last Tuesday.
But politics and economies aside, this week sees the local earnings reporting season start to really fire up. The subsequent two weeks see an avalanche of reports. Readers are referred to the FNArena calendar for release dates but be warned, these are not set in stone and as always, three different brokers will give you three different release dates for the same company.
So please accept the calendar is published on a best endeavours basis.
Rudi will appear on Sky Business on Wednesday at 5.30pm and on Thursday at noon and again between 7-8pm for the Switzer Report.
For further global economic release dates and local company events please refer to the FNArena Calendar.
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
