Daily Market Reports | Mar 05 2015
By Greg Peel
The Dow closed down 106 points or 0.6% while the S&P lost 0.4% to 2098 and the Nasdaq slipped another 0.3%,
Mixed GDP
Australia’s December quarter GDP result came in largely as forecast yesterday, with 0.5% quarter on quarter growth providing a 2.5% growth result for 2014. Notably, this was split as 3.4% growth in the first half of the year and 1.7% in the second, reflecting the plunge in commodity prices, which have not since recovered.
Yet net exports were still the primary driver of growth, alongside household consumption and residential construction. However, growth in sales was offset by the impact of a running down of inventories, suggesting discounting and a lack of confidence going forward.
Indeed, CBA’s economists note nominal GDP came in at a mere 1.7% annual growth, the lowest level since 2009 and a level “you would normally equate with a recession”. What is missing is the business capex growth required to offset the capex wind-down in the resource sectors. Falling commodity prices have dented overall confidence, which leads to curtailed spending and a flow-through to lower wage growth and thus constrained consumer spending.
That the GDP came in as forecast probably disappointed markets yesterday, which were perhaps hoping for a weaker number to hurry up the RBA. Yesterday’s 0.5% fall for the ASX200 looked very much like a follow-on from Tuesday’s rate disappointment, with banks, the telco, utilities and consumer staples leading the index lower. Materials also took a hit, but that was mostly to do with Rio going ex.
Service Sectors
The Aussie didn’t follow down the stock market yesterday and is steady at US$0.7824, as ASIC launches an inquiry into why the currency moved suddenly, in line with the RBA’s rate decision, at 2.29pm both on Tuesday and at the previous RBA release.
It appears the lower Aussie is beginning to offer a benefit to Australia’s service sector, with the February PMI rising into expansion territory at 51.7, up from January’s 49.9.
As was the case with China’s manufacturing sector, China’s rapidly growing services sector bounced off the bottom last month with a rise to 51.8 from 51.0. Japan saw a worrying fall to 48.3 from 51.3, the eurozone was disappointed by a rise to 53.7 from 52.7, having expected more, while the UK saw a drop to 56.7 from 57.2.
The US number inched up to 56.9 from 56.7.
Wall Street Retreat
It continues to appear that Nasdaq 5000 was a sufficient trigger for profit-taking in US stocks ahead of tonight’s ECB meeting and tomorrow night’s US jobs report. The ADP private sector jobs report, released last night, showed 212,000 jobs gained in February. This is down from January’s 250,000, but then the January number was revised up from an initial 213,000, so all rather neutral there.
The market is expecting a non-farm payrolls number of 238,000 tomorrow night, and the jobs numbers are all rather critical given the timing of the Fed’s rate rise will be “data-dependent”. Last night’s anecdotal Fed Beige Book suggested little change to “modest” growth for the US economy, and little impact from heavy winter snow in some regions.
The Beige Book did however give a nod to falling oil rig counts and job losses in the US oil industry, which had a rather bizarre effect on the Nymex fraternity. West Texas crude shot up US$1.33 to US$51.68/bbl as if traders had only been hearing the rig count news for the first time. At least they realised the Fed was only acknowledging old news over on the ICE, where Brent fell US46c to US$60.56/bbl.
ECB Jitters
The euro tanked again last night, sending the US dollar index up 0.6% to 95.96. It would seem that one day ahead of the ECB meeting which will outline Mario Draghi’s plans for QE eurozone-style, improvement in both the zone’s manufacturing and service sector PMIs has markets worried the ECB might back off a bit on the “shock and awe”.
If it did, this would be in contradiction to Draghi’s brutally frank comments that he does not believe QE alone, no matter how significant, is enough to turn the struggling eurozone economy around. That would require support on the fiscal side, and that brings politicians into the game.
Perhaps the Greek drama offers some pointers.
The big jump in the US dollar did not much impact prices on the LME, where lead was down 1%, nickel was up 2% and nothing else moved. Iron ore is down another US20c to US$62.10/t.
Gold responded to the dollar, but merely drifted down US$4.10 to US$1198.80/oz. But having traded back under 1200, gold might just see a few nervous holders wondering whether the Fed may ever raise rates.
Today
The SPI Overnight closed down one point.
Australia’s January retail sales and trade balance numbers are out today, and again markets will assess the implications in light of a possible April rate cut we can spend the next three weeks debating.
The world will hold its breath tonight as the ECB unveils the specifics of its own take on QE.
Rudi will appear on Sky Business' Lunch Money today, from noon till 12.45pm.
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