Daily Market Reports | Mar 30 2015
By Greg Peel
Local Strength
The iron ore price was down again but the materials sector closed flat on Friday, while oil was up strongly and the energy sector went backwards. It was the right call, given oil tanked again on Friday night. Beyond that, every sector finished in the green in a surprisingly strong Friday session, led by a 2.7% gain for utilities.
Yield was yet again being sought – it doesn’t take much of a dip before the yield buyers come rushing back – and even consumer discretionary saw a strong session.
The cause is probably being aided by the steady drift-back in the Aussie dollar, following the Fed related spike up to 79. The Aussie was weaker again on Friday night, and was down a full percent to US$0.7752 on Saturday morning.
Oil Tanks
The situation in Yemen, said Goldman Sachs in a note on Friday, is not a major threat to global oil supply. On the other hand, Goldman also reinforced that which the oil market had been “fearing” all week – positive progress on Western negotiations with Iran – could potentially see a new flood of Iranian production onto the market soon.
Meanwhile, the US rig count fell for the sixteenth consecutive week last week. However, the reduction of 21 rigs, compared to 56 the week before, suggests the rate of rig reduction is now slowing and that subsequent curtailing of production is now reaching a plateau.
Put all of the above together, and West Texas crude fell US$2.85 or 5.6% to US$48.39/bbl on Friday night, and Brent fell US$3.05 or 5.2% to US$56.05/bbl.
Yellen Qualifies
It was a choppy but flat session on Wall Street on Friday, with the indices bouncing around in small ranges. The Dow closed up 34 points or 0.2%, while the S&P gained 0.2% to 2061 and the Nasdaq added 0.6%.
The oil price tumble kept a lid on the major indices but anticipation of a speech given by Janet Yellen in the last half hour of trade ensured little overall movement. Takeover talks boosted the Nasdaq. The session’s economic data releases held little surprise – the US December quarter GDP was revised down to 2.2% growth from 2.6% as expected, compared to 5% in the September quarter, and fortnightly consumer sentiment came in at a slightly better 93.0 when 92.5 was expected, albeit still a four-month low.
Yellen released a transcript of her speech ahead of her delivery, thus markets had a brief chance to respond before the closing bells. The important revelations were that the Fed would hold off on raising rates were inflation to weaken further, but on the other hand would not need core inflation to rise to 2% to trigger the first rate rise. On that basis Yellen suggested that rate rise is likely later this year, but the first rise would not be a signal for a run of consecutive hikes.
After raising once, the Fed would then proceed very cautiously with regard any subsequent hikes.
This was not exactly new news from the Fed, given Wall Street has long expected a rate rise in the second half of 2015, and has not been assuming a series of hikes thereafter. But it helps to hear the chair reinforce those salient points. With the weekend beckoning and the March quarter winding down, Wall Street closed on a small positive.
The surprise came from bond markets, with saw renewed buying ahead of Yellen’s speech. The ten-year yield fell back 6 basis points to 1.95% having jumped up in the previous two sessions.
Metal Weakness
The US dollar index was steady on Friday night at 97.35, so it cannot be blamed for any commodity price movements on the night. News that Chinese industrial profits fell 4.2% year-on-year over January-February was not encouraging. Profits fell more in December – 8% yoy – but it’s the first time in three years the pre-New Year period has seen a profit decline.
Last year’s star metal, nickel, continues to fall in price and was down another 2.5% on Friday night. Traders have been left scratching their heads, but the suggestion is weakness in Chinese steel demand is flowing through to nickel via the stainless steel market. Copper fell back 1.5% and lead was also down, with aluminium steady and tin rising 1%.
Iron ore fell US70c to US$54.10/t to mark another new post-GFC low.
Gold fell US$6.50 to US$1197.10/oz.
Throw in the big falls in oil, along with everything else being down, and it’s not hard to see why the Aussie’s back at 77.
The SPI Overnight closed down 39 points or 0.7% on Saturday morning.
The Week Ahead
It’s a short week this week for all major markets outside of mainland China and Japan. The US sees a convoluted Good Friday holiday for which markets are closed but banks remain open, and economic data releases continue as scheduled. This means the all-important US jobs number for March will be released to empty exchanges.
Wall Street will have a chance to respond on Monday nonetheless, while all other major Western markets remain closed. Tomorrow is end of quarter, and in Australia the Easter weekend signals the beginning of school holidays. Thus once the March quarter is wrapped up, things will probably go a bit quiet.
The US will release pending home sales and personal income & spending tonight, the Case-Shiller house price index, Chicago PMI and Conference Board consumer confidence on Tuesday, and construction spending, vehicle sales and the ADP private sector jobs report on Wednesday.
Wednesday is the first of the month, and that means the release of manufacturing PMIs from across the globe. Beijing has now taken to releasing its manufacturing and service sector PMIs together on the same day. HSBC will release its service sector PMI for China on Good Friday, as will Japan and the US. The others will wait until the following week.
Thursday in the US sees factory orders and the trade balance ahead of the jobs report on Friday.
The eurozone will see a flash estimate of March CPI on Tuesday, along with jobs numbers, while Japan will release its quarterly Tankan Survey of economic performance on Wednesday.
It’s a busy week data-wise in Australia ahead of the break, beginning tomorrow with private sector credit and new home sales. Wednesday it’s building approvals, house prices and the manufacturing PMI, and Thursday sees the trade balance, housing affordability and the TD Securities inflation gauge.
The ex-divs slow to a remaining trickle this week locally as the first of the AGMs are held in the wake of the February reporting season. They will build in number in April.
Fairfax Media ((FXJ)) will hold a briefing regarding its Domain business tomorrow.
Rudi will appear on Sky Business on Wednesday at 5.30pm and on Thursday at noon.
For further global economic release dates and local company events please refer to the FNArena Calendar.
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