Daily Market Reports | Apr 08 2015
By Greg Peel
The Dow closed down 5 points while the S&P lost 0.2% to 2071 and the Nasdaq fell 0.1%.
Oops
It is becoming a fair bet that whenever the market convinces itself the RBA is going to do something it doesn’t, or vice versa. That is not to say the central bank is playing games, it’s just that the market whips itself into such a frenzy, the fallout is dramatic.
A month ago, when the RBA cut its cash rate and said “Further easing of policy may be appropriate over the period ahead”, most economists called the next cut in May, post the release of the March quarter CPI data. Yesterday, ahead of the April decision, most economists suggested it might be today, but if not today, next month. In other words, no one should have been terribly surprised.
But they were. The Aussie, which had been drifting lower and lower into the decision regardless of moves in the greenback, shot up over a cent to 77 as short positions scrambled to cover. The stock market, which was up a whopping 83 points ahead of the RBA announcement led primarily by the banks, on the balance of the weak US jobs number (implying no rush from the Fed) and anticipation of an RBA cut, fell straight back to almost flat. Only towards the death did saner heads prevail.
One might argue that the earlier release of better than expected February retail sales numbers, showing 0.7% growth when 0.4% was forecast, was another reason Bridge Street rallied in the morning. But then strong consumer spending would play into the RBA staying put, so you could get into a tangle trying to figure that one out. Meanwhile, a downturn in ANZ’s job ads numbers pointed to rising unemployment, and expansion eased in Australia’s dominant service sector as indicated by a drop in the March PMI to 50.2 from 51.7 in February.
And then there’s iron ore. The collapsing iron ore price claimed its first high profile victim yesterday, as once high-flying Atlas Iron ((AGO)) entered a voluntary trading halt. On the other hand there’s Sydney house prices, which continue to fly.
It’s a tough one, but there is now almost majority expectation of a May rate cut.
Hail the ECB
The European comeback story many an investor is keen to follow played out further last night, with the eurozone service sector PMI showing a rise to 54.2 from 53.7. The zone’s composite PMI, which amalgamates services and manufacturing, rose to 54.0 from 53.3. Either QE is working, or the confidence that the QE safety net provides is working, just as it did in the US.
Last night the German stock market was up 1.3%. The UK stock market was up 1.9%, following a services PMI reading of a surging 58.9, up from 56.7.
Last night was nevertheless the first chance for both markets to respond to the weak US jobs number and Fed policy implications.
Waiting on Wall Street
Wall Street began solidly last night on European strength and news on another major global M&A bid, with the Dow up a hundred points mid-session. But the sellers moved in through the afternoon as traders began to square up ahead of fresh information. The minutes of the last Fed meeting are due out tonight, amidst ever growing confusion and debate over the timing of the first Fed rate hike, and tonight Alcoa’s result release unofficially kicks off the March quarter earnings season.
The combination of a second year of bad weather and the impact of the strong US dollar on exporters and multinationals has Wall Street bracing itself for a weak quarter of earnings. But analysts have downgraded forecasts and investors have prepared for bad news, so one might argue the only way is up.
That said, the usual “time for a pullback” call is again popular, with disappointing earnings cited as a potential catalyst.
Dollar Calls
European traders returned from Easter last night and for some reason decided to sell down the euro, pushing the US dollar index up 0.8% to 97.93. Strength in the greenback helped the Aussie to ease back from its RBA-shock rebound, and thus the Aussie is up 0.7% to US$0.7637 over 24 hours.
However the weak US job number, on top of generally weaker overall US data of late, now has commodity traders assuming the rapid run-up in the greenback may be finding a near-term peak. Recent strength has been all about the assumption the Fed would move sooner rather than later, which has now been reversed.
The LME reopened last night and copper, lead and zinc all saw 1% price increases. Volatile nickel was the odd metal out, falling 2.7% on new of lower US stainless steel consumption.
There was some relief in the iron ore market, with a US90c rise to US$47.60/t, but Atlas’ trading halt locally has now firmly put the spotlight on all junior iron ore miners, particularly those carrying debt.
The oils continued their rebound last night, with West Texas up US$1.19 to US$53.12/bbl and Brent up US58c to US$58.39/bbl.
Gold bucked the trend and fell US$6.70 to US$1207.70/oz on last night’s dollar strength.
Today
The SPI Overnight closed up 13 points or 0.2%. With the dust of yesterday’s wild ride having settled, Bridge Street can now trade on the assumption that May is as good as April.
The Bank of Japan will hold a policy meeting today. Will it counter the ECB and the PBoC?
Rudi will appear on Sky Business' Market Moves, 5.30-6pm and again as host of YMYC 8-9pm.
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