Daily Market Reports | Apr 01 2015
By Greg Peel
The Dow fell 200 points or 1.1% while the S&P lost 0.9% to 2067 and the Nasdaq lost 0.9%.
Madness
Down 73 points on Monday, up 85 points by midday Tuesday on the local market. What, exactly, changed overnight? Chinese stimulus? That one hardly came out of left field. Sure, there was a clear impact on the resources sectors yesterday – materials led the market with a 2% gain and energy was up 1.3%, both in the face of lower prices – but all the yield stocks that were suddenly out of favour on Monday were, as I predicted, back in favour yesterday.
I think everyone should just have a Bex and a quick lie down. Mind you, we did see the rally fade into the afternoon to provide only a 45 point gain for the ASX200 by the bell, but perhaps that was just book squaring for quarter-end.
If the constant talk from the RBA and APRA (as opposed to action) with regard possible measures to cool the investment housing market are having any impact, you wouldn’t know it from the lending data. Yesterday’s private sector credit numbers for February showed 0.5% monthly growth for 6.2% annual, with the housing segment up 0.5% for 7.2% annual, Within the housing segment, investor credit continues to run at a growth rate above APRA’s warning threshold of 10%.
Maybe everyone’s trying to get in before the shutters come down. The good news, nonetheless, is that business credit is picking up, rising 0.6% to 5.2% annual. This is the number we want to see grow, as it is a barometer for the much needed economic transition away from mining.
Deflation Eases
Europeans were at least somewhat heartened last night that the flash estimate of eurozone CPI for March showed a “rise” to minus 0.1% annualised on the headline from minus 0.6% in February. This implies a slowing in the rate of deflation, and perhaps a turning point thanks to QE tailwinds.
It was not so pleasing to see core inflation fall back to plus 0.6% from plus 0.7% nonetheless. Deflation on the headline can be put down to the impact of lower oil prices on top of the weak European economy, but oil prices are not included in the core measure. Still, it’s early days for QE.
Confident America
The ups and downs we’ve been seeing on Bridge Street are for the most part mirroring the ups and downs on Wall Street these past few sessions. Last night was another big down, which again was mostly attributed to book squaring for quarter-end.
But there is also rising nervousness with regard the March quarter corporate results season, which will begin in another week. Net earnings forecasts have been marked down to zero growth. Typically, analysts become too pessimistic leading into results seasons and more companies “beat” expectations than “miss”. But this quarter is all about the impact of the strong US dollar, and no one is yet quite sure just how much of an impact that will prove to be.
Then there’s the weather, which just as it did in 2014 has impacted on economic growth and corporate earnings in 2015. We will be talking about the weather effect all the way through to the end of the June quarter.
American consumers, it would seem, have regained their confidence. Economists had forecast the monthly Conference Board measure of consumer confidence to fall to 96.0 from February’s 98.8 but instead it rose to 101.3 – into optimistic territory. The surprisingly positive February jobs number has been credited.
Such confidence is good news for the US economy as it heads into summer. On the other hand, economists had expected the Chicago PMI measure of activity in the busy Midwest to bounce back into expansion territory in March at 51.7, up from February’s 45.8. But instead it came in at a disappointing 46.3.
Such mixed messages simply add to the confusion with regard Fed policy. The spread of opinion with regard just when the Fed might hike was summed up nicely on CNBC this morning with a snap poll of four market participants. Their answers were fourth quarter, late fourth quarter, June and 2016. Four is hardly a viable sample, but you get the picture.
Wall Street basically closed flat for the March quarter.
Metal Malaise
Joy for materials sector investors over Chinese stimulus may prove short-lived today. The iron ore price has tumbled another US$1.90 to US$51.00/t. This is getting serious, specifically for those smaller miners carrying significant gearing.
And the nickel rout continues, with the stainless steel component down another 4% last night. All base metals finished lower, on a 0.3% rise in the US dollar index to 98.34 and also to the same book-squaring affecting other markets. Copper was down 1.2%, but nickel is really getting hammered.
The oils were also lower again last night, with West Texas down US$1.12 to US$47.53/bbl and Brent down US$1.18 to US$55.19/bbl.
Gold is relatively steady at US$1182.90/oz.
Today
The Aussie is down another 0.4% to US$0.7613 as expectations continue to build that the RBA will move again next week, rather than waiting until May and the March quarter CPI result. Yesterday’s credit data illustrate just what a difficult position the central bank is in, but weak employment and economic growth are enough to get the RBA across the line, many economists believe.
The SPI Overnight closed down 32 points or 0.5%, so the yo-yo will be back in play again today. It is, nevertheless, the first of a new month and a new quarter, in case that might make a difference.
Manufacturing PMI data are out across the globe over the next 24 hours, with Beijing releasing both manufacturing and service sector data for China. Locally we’ll see building approvals and house prices.
Jobs will be back in focus tonight in the US with the release of the ADP private sector jobs report for March.
Rudi will appear on Sky Business's Market moves, 5.30-6.00pm.
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