Daily Market Reports | Jul 24 2015
By Greg Peel
The Dow closed down 119 points or 0.7% while the S&P fell 0.6% to 2102 and the Nasdaq dropped 0.5%.
The Bad Oil
A new round of weakness in commodity prices is beginning to weigh on the Australian stock market in the wake this month’s macro turmoil, and we’ll likely see more of the same today. While LME traders are currently facing the northern summer slowdown period, concerns over Chinese growth continue to influence base metal prices and iron ore is struggling to hold onto US$50/t.
West Texas crude has now fallen meaningfully into the forties once more and gold is feeling unloved ahead of the Fed rate rise.
Yesterday saw the materials and energy sectors lead the ASX200 lower following Wednesday’s rout, with the big-name miners the biggest losers.
The Aussie dollar is also coming under pressure from commodity prices, US dollar strength notwithstanding, but at least this provides a silver lining of sorts for many companies. The Aussie is this morning 0.4% lower at US$0.7352.
Whimper
There was some concern the ruling Syriza party might fall apart ahead of the second vote in the Greek parliament, leading to a possible general election and potentially back to square one. But the party suffered no greater number of defectors and abstainers than it did for the initial vote, thus last night the parliament passed the additional round of reforms required by Greece’s creditors.
The way is now clear for the terms of the actual bailout to be decided upon.
Despite the earlier uncertainty, the vote was met with fervent disinterest by Europe’s major stock markets, with both the German and French indices posting flat sessions.
Earnings
With US oil now back under the US$50 mark the US energy sector is feeling the pain, but last night’s drop on Wall Street was driven mostly by another round of weak earnings reports from some of the big names. The Dow again led the indices lower, with components Caterpillar, 3M and American Express all posting disappointing results.
There was some respite offered after the closing bell nonetheless, with Amazon posting a beat which has sent its shares up 16% in the aftermarket. Amazon joins fellow new-agers Netflix and Google in posting solid upside surprises, while to date it appears it is the old stalwarts who are suffering.
Fingers have been firmly pointed at the stronger greenback. The US dollar index is this morning 0.2% lower at 97.20.
There was also much excitement generated by last night’s weekly new jobless claims. Weekly numbers are volatile and economists noted the jobs claims numbers can be particularly volatile in July, but last night’s figure of 255,000 new claims was the lowest since 1973. New claims have now remained under 300,000 since February, the longest run in fifteen years.
The jobs numbers bring the Fed firmly into the spotlight, but if Wall Street is now more convinced than ever the first rate rise will be in September, the US bond market was certainly not indicating such last night. The ten-year yield fell 5 basis points to 2.28%, driven by the disinflationary implications of lower commodity prices and safe haven-seeking from those feeling uneasy about weak corporate earnings reports.
Commodities
If bond yields are falling on lower commodity prices, the irony is somewhat of a feedback loop is in play. If the Fed rate rise is now imminent, the US dollar is expected to rally. If so, US dollar-denominated commodity prices must fall. Last night LME traders cited the positive US jobs data as reason to sell yet again, sending all base metals lower bar tin. Aluminium fell 1.4% and copper fell 1.9%.
Iron ore fell US10c to US$50.60/t.
West Texas crude fell US37c to US$48.85/bbl last night, suggesting the halcyon days of the recovery to 60 and the restart of idled rigs are over. Another supply-side response will probably transpire in the US, ensuring West Texas cannot fall too far below 50, one would assume. Brent fell US49c to US$55.51/bbl last night.
Gold is down another US$3.80 to US$1090.20/oz.
Today
The SPI Overnight closed down 19 points or 0.3%.
The flashers are out and about today, beginning with HSBC’s estimate of its own China manufacturing PMI for July. Japan will join in, as will the eurozone and US tonight.
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