Daily Market Reports | May 22 2015
By Greg Peel
The Dow closed flat while the S&P rose 0.2% to 2130 and the Nasdaq rose 0.4%.
Get Me In!
Was HSBC’s take on China’s May manufacturing PMI good or bad? One can offer two differing views.
At 49.1, HSBC’s flash estimate is an improvement on the April result of 48.9 (good) but missed forecasts of 49.3 (bad) and represents the third straight month of contraction (bad). Persistent weakness will likely encourage Beijing to implement further monetary easing and other stimulus policies (good) but it would seem measures taken to date are not having much effect (bad).
But did it matter? Not yesterday. We saw the signals for a potential rally yesterday in Wednesday’s trade, in which the bargain hunters had clearly decided it was time to move in on both a fundamental (value, including yield) and technical basis (5600 is a clear support level). This suggested to the wider market a bottom had been seen in this pullback and so yesterday, it was a case of get in quick.
It was green across the screen as all sectors finished positively. Healthcare again led the way with a 2.1% rise while energy (1.8%) was relieved the oil price stopped falling and materials (1.5%) must have simply been happy the government was wavering on the idea of an iron ore inquiry, given the iron ore price continues to ominously slide. The banks (0.6%) and the telco (0.9%) have found fully-franked yield support levels.
The government has now officially dismissed the idea of an iron ore inquiry, incredulous that anyone thought they were considering one in the first place. It was him, it was him, they said, pointing at Nick Xenophon.
Mixed PMIs
Having posted a not so encouraging March quarter GDP this week, Japan would have been happy to see its manufacturing PMI estimate suggest a swing into expansion in May, with a move to 50.6 from 49.9. Not so happy were QE co-conspirators the eurozone, which saw the estimate of composite (manufacturing plus services) PMI slip to 53.4 from 53.9. Germany’s individual manufacturing PMI fell to a three month low of 51.4.
The US also wavered, seeing a fall in the manufacturing number to 53.8 from 54.1, to add yet another reason to feel the Fed will hold off. But if these estimates are accurate, at least we can say the manufacturing industries of Japan, Europe and the US are all expanding, while China’s is contracting.
Directionless
Given the monotonous regularity with which the various US indices seem to hit new all-time highs these days, it’s interesting to note that the last time the big three actually hit a new ATH together on the same day was back in 1999. Last night looked like a strong chance for a trifecta once again, but while the S&P just snuck over the line, a typical late drift-off saw the Dow and Nasdaq retreat.
That the Dow closed about as flat as is possible on the session (+0.34 points) is testament to the apparent directionlessness of Wall Street this past week or so. They can’t find any real reason to buy it but they don’t really want to sell it either.
After a very strong read on US April housing starts earlier in the week, last night April existing home sales disappointed with a 3.3% fall. The year on year trend nevertheless remains positive.
More disappointing was the Philadelphia Fed activity index, which fell to 6.7 from 7.5 in April when forecasts suggested 8.3. The Chicago Fed national activity index saw improvement, but only to a slower pace of contraction at minus 0.15 from minus 0.36.
The Conference Board’s leading index for April forecast 0.7% growth, which seems a bit out of tune with the rest of the data. The Board suggested it means the US economy will rebound out of a sluggish, weather-bound first quarter, yet not dramatically so.
So that’s why Wall Street can’t go anywhere at present. Weak economic data are bad, but that keeps the Fed in its box, so that’s good.
Which makes you wonder why the US ten-year bond yield fell 7 basis points last night to 2.18%. Some bond buying is fair enough if the Fed is going to hold off, but the volatility in this market of late is really blowing away the long-held wisdom of the bond market representing the “smart money” and the stock market being a bunch of trigger-happy cowboys.
After a very strong week, the US dollar index finally eased slightly last night, by 0.3% to 95.35. The Aussie is thus 0.3% higher at US$0.7897.
Broken China
The oil markets apparently took three months of contraction for the Chinese manufacturing PMI to be a positive last night, as it implies further stimulus measures. Never mind that Chinese oil imports have only ever grown consistently even as the economy as a whole has slowed.
West Texas crude jumped US$1.91 to US$60.68/bbl while Brent rose US$1.60 to US$66.45/bbl.
The feeling was similar on the LME but the movements among metal prices were mixed. Copper rallied back 1% and lead jumped 2%, but elsewhere prices were weaker.
The iron ore price continued to drift away, down another US20c to US$57.60/t.
And gold continued to retreat to the sanctuary of a familiar 1200, falling US$3.30 to US$1206.50/oz.
Today
Futures traders expect the local market to go on with it today; the SPI Overnight closed up 19 points or 0.3%.
We’ll find out how German businesses are feeling about the state of play tonight with the release of the IFO survey, while the CPI result in the US will fuel up more Fed discussion.
On the local stock front, PanAust ((PNA)) will hold what will likely be its last AGM as a standalone entity today.
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