Daily Market Reports | Mar 27 2015
By Greg Peel
The Dow closed down 40 points or 0.2% while the S&P fell 0.2% to 2056 and the Nasdaq lost 0.3%.
Sell Yield
If it’s time to take profits then the first stocks to sell are those which have outperformed and are arguably overvalued. So yesterday on Bridge Street investors sold yield, led by the banks with a 2% fall and healthcare ditto, along with the telco (1%) and the big miners (1%). The big miners haven’t exactly outperformed, but they have been bought lately for their dividends.
It was otherwise red all over the screen nonetheless, except for an energy sector which responded to a jump in the oil price. Given what has since transpired, that looks like prescient buying.
Is it time to panic? No. It is time to be thankful some of the heat is coming out of the market. The issue now is simply one of who will blink first and jump back into to yield once more at lower price levels. Bear in mind we’re approaching quarter-end, which has encouraged the square-up. Once we get past Easter things may be different.
It it’s interesting to note, nevertheless, that talk on Wall Street is of the Dow/S&P potentially finishing down for the quarter. Wall Street has not seen a down-quarter for six years. It has only seen a lower March quarter four times in about 20 years.
Yemen the new Hot Spot
Adding greater weight to the quarter-end square-up explanation on Wall Street is the US bond market, where last night the ten-year yield jumped 9 basis points to 2.01%. In times of geopolitical nervousness, investors usually buy US Treasuries, not sell them.
Last night Saudi Arabia launched air strikes against Yemeni rebels in the capital Aden and in other parts of the country towards the Saudi border. The strikes have swiftly followed the fleeing of the Yemeni president on Wednesday night. As I noted yesterday, Yemen does not produce oil but a lot of the world’s seaborne crude passes around the Yemeni coast on its way to the Suez Canal.
Last night West Texas crude jumped US$2.27 or 4.6% to US$51.24 and Brent jumped US$2.84 to US$59.10/bbl. Both oils have now broken out of recent trading ranges.
As to whether a bunch of rebels in Yemen is really going to impact on global markets is up for debate, particularly if the Saudis are in on the act so quickly. These geopolitical fear spikes usually prove short-lived. But according to exchange data, the level of short positions in oil futures (and when we speak of WTI and Brent, they are futures contracts) is currently significant, hence what we saw last night and the night before is largely evidence of short-covering. It is not a reason to call the oil market back from the dead, yet.
The Dow was down around 140 points from the open last night without any particular economic data influence (a flash estimate of service sector PMI came in at 58.6 versus 57.0 expected) and that move was all about Yemen, simply adding to the selling pressure from the night before. But the indices recovered and with half an hour to go the Dow was back in the green, before a bit of late selling.
Iron Ore Sags Again
Oil prices paid no heed to a 0.5% recovery in the US dollar index last night to 97.34, and nor did base metal prices show much interest. Nickel slipped another 0.5% and tin fell over 1%, but aluminium recovered 0.9% and other metals were flat.
The bounce a couple of days ago in the iron ore price might have sent some heartbeats racing amongst the junior miner fraternity but is not being sustained. No wonder Twiggy’s become desperate. If it’s not bad enough he’s ruffled everyone’s feathers with his iron ore cartel talk, he did so in China, of all places. Not so much biting the hand that feeds you, rather chomping it off at the elbow.
Iron ore is down another US70c to US$54.80/t.
The Aussie dollar is continuing to drift back in the wake of last week’s Fed-related spike, and is down 0.2% to US$0.7828.
Today
The SPI Overnight closed unchanged.
Japan will provide a February data dump today of inflation, industrial production, retail sales and jobs numbers while tonight, the US will make a final revision of the ancient relic of December quarter GDP.
Locally, the ex-div season is tapering off and there are only a few today.
Rudi will appear on Your Money, Your Call. Bonds versus Equities tonight, on Sky Business, 8-9pm.
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