Daily Market Reports | Jul 02 2015
By Greg Peel
The Dow closed up 138 points or 0.8% while the S&P gained 0.7% to 2077 and the Nasdaq added 0.5%.
Freight Train
The first local session of FY16 began with a flurry to the upside and was boosted by a takeover bid for rail haulage company Asciano. That stock jumped 17% and helped float all boast in the transport logistics space, pushing the industrials sector index up 4% to lead the day.
If fund managers were opening fresh accounts for the new year, growth was on the menu and solid gains were seen for healthcare, energy and consumer discretionary while staples, the telco and utilities – the yielders – were left behind. The banks split the difference. Materials was the only sector to fall, following a drop below 60 for the iron ore price.
Nor was the materials sector provided much support from China’s PMI releases on the day. Beijing’s manufacturing PMI was flat in June at an almost stalled 50.2, although the service sector was a little more positive with a rise to 53.8 from 53.2 in May. HSBC’s take on the matter was less encouraging, with the independent manufacturing PMI rising to 49.4 from 49.2 but remaining in contraction.
Australia’s manufacturing PMI means little these days for two reasons – there’s not much of a manufacturing sector left in this country and the monthly numbers are so volatile as to render this a meaningless series. There was excitement last month when the local PMI jumped into expansion at 52.4 but June saw a plunge to 44.2. No other developed country in the world sees PMI swings of such magnitude – not even close – surely bringing into question the survey process.
The good news for the Australian economy, on the other hand, was a 2.4% jump in building approvals in May for an annual rate of 17.6%, when economists had forecast a rise of 1.0%. It’s all about apartment blocks, nonetheless, as the Singaporisation of Sydney and other capitals continues a-pace. Apartment approvals surged 15.1% in the month alone while detached housing approvals fell 8.5%.
Never mind, foreigner buyers aren’t expected to value “the great Aussie dream”.
Dwelling prices jumped 2.1% in June for an annual rate of 9.8%, with most of the growth in Sydney. Approvals are a long-lead indicator and the faster they grow, the faster housing supply can catch up with demand. This should, in theory, weigh on prices down the track. But interest rates and foreign demand are the other driving factors.
The 56 point rally for the ASX200 yesterday took us back past the 5500 mark, having looked over the precipice at 5422 only on Monday. There is little for Australia to be concerned about vis a vis Greece, unless the whole financial world implodes, but no one expects that to happen. It is interesting, however, that we rallied yesterday despite another 5% drop in the Shanghai index to mark 22% for the ongoing correction.
Farcical
Last night the German and French stock indices each rallied 2% on the news that Alexis Tsipras had drafted a new proposal for Greece’s creditors to consider which included many concessions to the creditors’ earlier demands. This is it, the European markets assumed, Tsipras has buckled. There was even talk of the referendum being called off.
But when the finance ministers, who continue to be holed up in Brussels, took a look at the new proposal, they could not find anything different. Their frustration then turned to anger when Tsipras appeared on state television to again implore the Greek people to vote “no” on Sunday, suggesting a “no” vote would mean the creditors would be forced to bend to Athens’ will.
Incensed, the ministers arranged a quick phone hook-up and decided they would all pack up and go home for the weekend. They’ll wait until to Monday for the outcome of the referendum.
If this is Tsipras’ idea of political brinkmanship, then it would be more at home on Looney Tunes than in the halls of sovereign diplomacy. It’s now down to the Greek people, and the most recent polls have clouded the issue. Earlier in the week “yes” seemed way ahead, but now “no” is rapidly making a comeback.
We’ll all have to wait until Monday.
Wall Street
European stock markets had closed by the time the finance ministers were booking their flights. The positive mood had flowed over to New York early in the session, sending the Dow up 182 points from the open. On realising it was all just a farce, Wall Street drifted back, but domestic issues provided enough support to ensure a solid start to the second half nonetheless.
The ADP private sector report showed 237,000 new jobs being added in June, beating 225,000 forecasts. There is now talk of tonight’s non-farm payrolls number potentially surprising to the upside, maybe up to 290,000.
New vehicle sales posted another very strong month with Fiat-Chrysler leading the pack by a margin. It’s all about American car buyers not holding back. You bought a what?
A 0.8% increase in US construction spending in May took it to the highest level since October 2008, suggesting that after all this time construction spending has finally returned to pre-recession levels.
The only downer was the US manufacturing PMI, which fell to 53.6 from 54.0 to mark its lowest pace of growth since October 2013.
But overall the data were to the positive side, and the interesting thing here is Wall Street finished the day in the green despite the implications for Fed timing. But if early buying represented relief over Greece, tonight’s session (ahead of a long weekend and Greek referendum) might be interesting.
Currency and bond markets were more inclined to take Fed policy into account, with the dollar index rising 0.7% to 96.27 and the US ten-year bond yield rising 8 basis points to 2.42%.
Commodities
Similarly, the LME closed on a high note on the assumption Tsipras had conceded to doing a deal. Having been beaten down on Greek woes this past couple of weeks, short-covering rallies in base metals saw lead jump 1%, aluminium and zinc 2.5% and tin 4.5%. Copper moved a little higher but nickel fell slightly.
Iron ore fell another US40c to US$58.90/t.
It’s funny how the iron ore price and West Texas crude price continue to mimic each other, having fallen to 45 and bounced back to 60 pretty much in lockstep, despite having very little connection. Last night West Texas fell US$2.18 to US$56.88/bbl on higher than expected weekly US inventories, which underscores the realisation that despite a big drop in rig count, US oil production is actually on the increase again.
And the Saudis are pumping more than ever. Brent fell US$1.22 to US$62.03/bbl.
Gold fell US$4.30 to US$1168.30/oz on the stronger greenback.
The Aussie is down 0.7% to US$0.7648 on the stronger greenback.
Today
After yesterday’s strong opening gambit, the SPI Overnight closed down 3 points.
Australia’s May trade balance numbers are out today, following on from April’s shocker of a record deficit.
Tonight it's jobs numbers in the US, ahead of the Fourth of July long weekend. There will no doubt be much activity on the floor of the NYSE in the morning, and tumbleweeds in the afternoon.
Presumably we can stop talking about Greece now until Monday.
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