Daily Market Reports | May 01 2015
By Greg Peel
The Dow fell 195 points or 1.1% while the S&P lost 1.0% and the Nasdaq dropped 1.6%.
To cut or not to cut
Most of the additional damage done yesterday to the ASX200, following on from Wednesday’s big fall, was due to the banks (-1.5%). Telcos chimed in (-1.3%) but it was not a blanket selling session this time, with supermarkets, for example, rebounding (+1.3%).
Sentiment towards the banks at present is a bit like Queensland – beautiful one day, pissing down the next. As recently as last Friday the market couldn’t get enough of these yield-paying darlings in a session driven by the iron ore price rebound. Then someone pointed out the iron ore rebound might stave off an RBA rate cut, and to rub in the salt, Glenn Stevens pointed out in his speech on Tuesday that the banks need to be well capitalised.
It ain’t new news, but suddenly the focus is back on the potential for banks to be required to hold more capital. And yesterday’s private sector credit data for March, which reminded us of 10% annual growth in investor housing loans, brought a possible APRA clamp-down back into focus. Again – not new news.
At the same time we’ve seen the Aussie break-out of its trading range and surge northward, on the assumption expectations of an ever rising greenback and pending Fed rate rise are exaggerated. But then yesterday the Fairfax press published an article suggesting the RBA will indeed cut on Tuesday. The confidence of the article smacked of RBA sourcing.
Thus the Aussie is down 1.1% to US$0.7916 over 24 hours, despite the US dollar index also being down 0.4% to 94.78 over the same period.
Greek Cracks
The US dollar eased because the euro firmed. And that’s all to do with Greece.
In last night’s episode, it appears the Greek government is ready to give ground. With a big payment due on Monday, the new Greek negotiating team and lending representatives are determined to hash out an acceptable deal by Sunday which will include Greece agreeing to at least some level of reforms. These may include the introduction of a GST and a cut to pensions, which are higher than those of lender eurozone countries. Asset sale may also be involved.
A week ago it looked as if a Grexit was inevitable. Now the opposite appears the case. Polling in Greece suggests most Greeks do indeed want to stay in the eurozone, even if they don’t like the requisite austerity. They elected Tsipras because he said he will end the austerity but still take the bail-out funds. This hasn’t worked, if ever it were going to, and Greek voters can at least see that Tsipras gave it a shot. So without a referendum, he arguably has a mandate to capitulate.
Wall Street Follows
Last night Wall Street did what Bridge Street did on Wednesday – sold down across the board because there seems no impetus to go higher. Last week the Nasdaq hit a new all-time high for the first time in fifteen years and the S&P500 retook its own all-time high, but what might drive further strength?
It didn’t help last night that there were rumours a component of the new Apple iWatch is faulty. Shares in America’s biggest company fell 2.7%. But realistically, Wall Street is looking at generally weak economic data and generally weak earnings results.
It matters not that three-quarters or so of US companies reporting to date have beaten earnings estimates. All that means is that instead of the net minus 4% earnings growth forecast leading into the season being ratified, results are running at net minus 2.8%. And on Wednesday night we learned that the US economy grew by a mere 0.2% in the March quarter when 1.0% was expected, down from the December quarter’s 2.2%.
Revenue growth has also shown to be yet again absent for US companies, with cost-cutting still a driver of growth and the stronger dollar having an impact. These are not factors which suggest the US stock market should be powering ever upward right now, even if the Fed does hold off a bit longer. Maybe the June quarter will see a rebound, but Wall Street is not game to take that as a given just yet. So far the signs aren’t flash.
Well Oiled
One sector in the US stock market which does have reason to rise is the energy sector. Following on from Wednesday night’s oil price gains, given a surprise drop in weekly inventories, West Texas crude ended the month with 2% final hurrah, rising US$1.15 to US$59.80/bbl. WTI rose 25% in the month of April. Brent rose US$1.25 last night to US$66.83/bbl as both benchmarks push further into new 2015 high territory.
If markets are becoming more and more convinced oil has seen the bottom, base metal traders are becoming more convinced the US dollar is now in pullback mode. This provides a boost for dollar-denominated commodity prices, and last night copper broke up and posted a 3% surge. Nickel went one better with a 3.5% gain. Aluminium and zinc followed with 2%.
All good news for our local materials sector, except that iron ore is down again, falling US70c to US$56.20/t. Was it all just a dream? Or more realistically, was it all just a short-term, short-covering scramble and proverbial “dead cat bounce”? Either way, Rio put Twiggy back in his box last night.
Gold fell US$20.90 last night to US$1183.80/oz. Lord knows why. Commentary cites a fall in US weekly jobless claims but that seems far-fetched, More likely, leveraged investors sold gold positions to fund margin calls as stocks tumbled.
Today
The Australian stock market rubber band can only stretch so far to the downside before yield stocks – particularly the banks – look attractive again. Thus after a solid week of falls, it looks like we’ll shrug off last night’s Wall Street’s effort today. The SPI Overnight has closed unchanged.
M’aidez, m’aidez, m’aidez, it’s May Day, comrade. That means China is closed today and Germany and other European bourses tonight. It also means, being the first of the month, it's global manufacturing PMI day.
Not even a communist holiday will stop Beijing releasing its PMI numbers, although HSBC will wait till next week. Australia, Japan, the UK and US will publish results, with the eurozone also waiting till next week.
Locally, we also see the March quarter PPI out today, and a monthly check on house prices.
And for once, there are no production reports, quarterly reports, earnings results or AGMs scheduled for today from any major company. Although they do like to spring them on us occasionally.
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