Daily Market Reports | Jun 11 2015
By Greg Peel
The Dow rose 236 points or 1.3% while the S&P gained 1.2% to 2105 and the Nasdaq jumped 1.3%.
Consolidation
Yesterday’s session on Bridge Street looked a lot like last Friday’s session, in which the index chopped around in a small range and was balanced by specific sector moves. Sitting under 5500, it appears the market was trying to decide whether enough was yet enough after last week’s big falls.
Energy led the positive sectors yesterday on a jump in oil prices but elsewhere sector moves were mixed. Healthcare gave back some its gains of the past couple of days and the telco also pulled back, and this time supermarkets were sought. With foreign “Sell Australia” orders now apparently exhausted for the time being, traders have been fossicking around in the rubble for right stocks to buy at lower levels.
The macro has become less important for the moment given the 500 point adjustment. Yesterday’s big plunge in consumer confidence – the biggest monthly drop in a year – was not any source of panic and the consumer discretionary sector fell only modestly. The bump up from an initially well received federal budget has been wiped out and confidence is back on the pessimistic side of the equation, at its lowest level for the year.
This despite two rate cuts and a supposedly household friendly budget.
The dust has settled and households have likely come to realise it was not such a great budget, it just wasn’t a shocker like last year. Meanwhile, the stock market has fallen out of bed and every man and his dog has cried “bubble” with respect to the Sydney/Melbourne housing market. Little wonder consumers are nervous.
The RBA governor was also in on the bubble act yesterday, pulling out his best Patsy Cline to entertain guests at a luncheon. In a Q&A, Glenn Stevens described the Sydney housing market as “crazy”. And on that note, the Aussie dollar spiked up a cent.
The Aussie had previously fallen during Stevens’ formal speech, in which he reiterated that the central bank still had room to ease further if needs be. But the conundrum is that “room” and “crazy” are counterpoints. Up to now the official language from the RBA has suggested the central bank is keeping an eye on house prices but is not in panic mode. “Crazy” suggests panic might have begun to creep in.
Stevens also reiterated that he felt monetary policy was having less effect than it otherwise would now that we’re down at historical lows. The RBA may still have room to ease but if this is likely to have no more effect than make house prices even more crazy, in the governor’s view, then what chance another rate cut?
The Aussie is up 0.9% over 24 hours at US$0.7762, aided by a fall in the US dollar index of 0.6% to 94.58.
Compromise
The German stock market also tumbled last week and actually reached the 10% correction mark, but last night rebounded 2.4%. The impetus was, of course, Greece.
Yawn.
German chancellor Angela Merkel has now indicated she might be prepared to release a portion of bailout funds earmarked for Greece in exchange for at least one of the creditors’ reform demands. The troika is insisting on a full package of reforms including asset sales, higher taxes and less generous retirement benefits and the Greek prime minister has to date described the package as absurd.
But if Alexis Tspiras can agree to at least one element, the troika could release some of the funds and allow Greece to make good on its onerous IMF repayment obligation at the end of the month. Presumably, another reform would be rewarded with another hand-out. But Given Greece’s repayment commitments only get worse as the year goes on, the full tranche is still ultimately needed by Greece and on that basis Tsipras would eventually have to agree to all the reforms, one presumes.
So will he go for it, or will he see it as a patronising tease? We don’t know yet, but having been beaten down, European stock traders saw a least a glimmer of hope and thus reason to go bargain hunting last night.
Rebound
That hope flowed across the pond and sent Wall Street surging from the opening bell. The Greek news spurred a rally in the euro, which was responsible for the drop in the US dollar index. The lower dollar provided a fillip for commodity prices, and thus another rally in oil prices helped add further fuel to the stock rebound fire.
On Tuesday night the Dow was back into negative territory for the year. Last night’s rally took it back to close smack bang on 18,000, which seems to be the point of balance between Fed rate rise fears and economic recovery hopes.
On the former point, the German ten-year yield rose again and is now knocking on the door of the full 1.00%. US bond yields also pushed higher, rising 6 basis points to 2.48%.
Commodities
Last week gold broke down out of its longstanding trading range which suggested it could be set for a move back to 1100. But instead it completely stalled and on last night’s fall in the US dollar, is back inside that range once more. Rising US$9.40 to US$1185.80/oz, suddenly gold at 1200 is looking more likely than 1100 for the time being.
Lead and zinc couldn’t manage to join in the weaker dollar fun on the LME last night which otherwise saw a 0.5% gain for aluminium and 1% gains for copper, nickel and tin.
Iron ore jumped US$1.20 to US$65.10/t.
As noted, the oils were stronger again, with West Texas up US55c to US$61.16/bbl and Brent up US95c to US$65.60/bbl.
Today
Hold onto your hats, the SPI Overnight is up 62 points or 1.1%. The consolidation we’ve seen these past few sessions has already suggested the local market is itching for a rebound and just needs some specific impetus. Today Wall Street’s lead may just be what the doctor ordered.
On that basis it is again unlikely the macro will have much effect, even though we see May jobs numbers today. It might be hard to gauge just what leverage Joe Hockey will seek to gain from whatever the result may be, as it’s difficult for one to speak when one’s foot is so firmly wedged in one’s mouth.
The other spectre in the room today could be China, where May industrial production, retail sales and fixed asset investment numbers are due. However if they are bad, that implies firmer stimulus, so it is unlikely Beijing can conjure up anything to spoil the party on Bridge Street today.
Rudi will make his weekly appearance on Sky Business’ Lunch Money today.
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