Daily Market Reports | Jul 03 2015
By Greg Peel
The Dow closed down 27 points or 0.2% while the S&P was flat at 2076 and the Nasdaq lost 0.1%.
What Crisis?
The ASX200 closed last Thursday at 5600. The ASX200 closed yesterday at 5600. One would be forgiven for thinking there was not much going on in the world at present.
On Monday the ASX200 closed at 5422, following the worst session on Bridge Street in three years. That 2.2% drubbing, and in general the 3.2% fall from last Thursday to Monday, was all about joining in the global risk adjustment for a possible Greek exit, and all about a Chinese market plunging to a 20% correction. A Grexit is no less possible now than it was a week ago, and the Shanghai index has done nothing but fall ever since.
Yesterday revealed Australia’s trade deficit retreated to $2.75bn in May, following April’s blow-away record of $4.14bn. While that looks like good news, the fact is it’s still a significant deficit for an export economy, and it missed forecasts of $2.2bn.
Exports rose a net 1%, including a 6% rise for iron ore and 9% for coal. While there was some price improvement from April to May, increased values reflect increased volumes, and prices have since begun to fall back again. A 4% drop in imports included a 16% drop in capital goods, reflecting rapidly diminishing resource sector construction, often erroneously referred to in the press as “the end of the mining boom”.
Despite the improvement from April to May, these are not numbers that would warm the cockles of a central banker’s heart. It is notable that while the ASX200 rallied from the open yesterday, with a little help from a positive Wall Street, the rally initially stalled. Only after the release of the trade balance numbers did the index really take off.
This might suggest the market was yesterday driven by a Wall Street-style “bad news is good news” expectation that the RBA will have to cut again. Certainly, the banks led the charge. Utilities also had a good session. But so did materials and energy, despite lower commodity prices, and despite the fact that while these sectors do contain some reasonable dividend payers, they're not really “yield” sectors.
The underperformer on the day was the telco. Furthermore, the most volatile market of all when it comes to RBA speculation is the currency market, and the Aussie barely moved.
We might perhaps give a nod to a sudden burst of M&A activity, which started with Buffet and IAG, has seen rumours around Woolies, saw Asciano leap on Wednesday, and saw something funny going on yesterday in BlueScope.
Or we might simply assume yesterday saw a “Buy Australia” order or two from offshore and the momentum fed on itself. We’re certainly not going to look a gift horse rally in the mouth, but you have to admit, things are all just a little bit crazy at present.
On the subject of China, having failed to stem the tide of falling stock prices with last weekend’s rate cut, Beijing has taken to more drastic measures. Yesterday the government introduced rules to allow Chinese investors to put up their houses as collateral for leveraged share market investment.
What could possibly go wrong?
Greece
I have declared this morning’s Report a Greece-free zone. You all know the story.
Wall Street
The US added 223,000 jobs in June, short of expectations. The unemployment rate fell to 5.3% from 5.5% to mark its lowest level in seven years, but only because the participation rate fell back again. Some 432,000 left the workforce in June, mostly reflecting school leavers who stepped out into the world and promptly crawled back under the doona.
Wage growth was flat in June, for a 2% annual rate.
It’s another one of those neither here, neither there non-farm payrolls results. In isolation it would not drive any expectations of a Fed champing at the bit to make its move. But we know that the Fed is champing at the bit to make its move – at least many in the FOMC are – and thirteen months of 200k plus job additions out of fifteen would seem reason enough to finally shift off zero, if just to test the waters.
The result is probably not enough to stave off a September rate rise.
There was certainly no emphatic response in US markets. The dollar index dropped, but only by 0.2% to 96.10. The US ten-year yield dropped, but only by 2 basis points to 2.39%. The stock indices actually opened higher before drifting lower to midday and drifting back up again to a modest closing loss.
One has to take into consideration (1), most of Wall Street would have cleared off by lunchtime to get to their Fourth of July holiday destinations and (2), no one would want to go home with a big position in either direction ahead of Sunday’s Greek referendum.
Ironed Out
The iron ore price has fallen US$3.10 or over 5%, to US$55.80/t. The fall has been blamed on the latest Chinese steel production data, which showed a big drop.
And for the first time since December, weekly US rig count data showed an increase last week rather than a decrease. The irony here is that many a rig has been switched back on thanks to the oil price’s bounce back up to 60, but higher production could well see oil back in the 40s again.
The market’s response was not too dramatic, with West Texas falling US37c to US$56.51/bbl and Brent falling US18c to US$61.85/bbl.
An 1% rally for nickel and a 1% drop for zinc were the biggest moves in an otherwise mixed and uneventful session on the LME.
Gold continues to drift away, falling another US$2.70 to US$1165.60/oz.
The Aussie is 0.2% lower at US$0.7634.
Today
The SPI Overnight closed down 23 points or 0.4%.
It’s service sector PMI day today across the globe, with the exception of the US. HSBC will wave the flag for China.
Locally, we also see May retail sales numbers.
Wall Street is closed tonight.
I assume that when I sit down to write The Monday Report on Monday morning, they’ll still be counting in Greece. Unless the result is already decisive one way or the other.
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