Daily Market Reports | Aug 05 2015
By Greg Peel
The Dow closed down 47 points or 0.3% while the S&P lost 0.2% to 2093 and the Nasdaq fell 0.2%.
Homefront
Given a weak lead from Wall Street, another big drop in the oil price and prediction of “unchanged” from the SPI Overnight yesterday morning, it seemed incongruous that the ASX200 should be up 48 points at midday yesterday. But for once it was not about what was happening in Greece or China or elsewhere, it was about what’s happening at home.
Data released yesterday showed a 0.7% jump in retail sales in June to a 4.9% pace of annual growth, beating expectations of 0.4%. Leading the charge amongst the segments is household goods, which is a reflection of the strong housing market but also of the federal budget sweetener for small business, given the segment includes electrical and electronic goods.
The May sales number was also revised upward and the data were enough to provide a boost to the consumer sectors yesterday.
The June trade data showed a return to export growth at 3.3%, driven by a 7.3% rise in iron ore and other metals and a 3.3% rise in coal exports. These are dollar value numbers, implying volumes were very strong to offset weaker commodity prices, and largely reflect a return to normal business following a period of bad weather and port shutdowns.
Imports rose 3.9%, thus the trade deficit widened further, which was largely due to the rebound in oil prices over the month meeting a weaker Aussie dollar.
And it was the subject of a weaker Aussie dollar which took the wind out of the ASX200’s sails late in the afternoon, to provide for a close of only up 18 points.
No Rate Cut
For months now the RBA has included this line in its monetary policy statements:
“The Australian dollar has declined noticeably against a rising US dollar over the past year, though less so against a basket of currencies. Further depreciation seems both likely and necessary, particularly given the significant declines in key commodity prices.”
In yesterday’s statement that line had suddenly disappeared, replaced by:
“The Australian dollar is adjusting to the significant declines in key commodity prices.”
After screaming from the mountain top all this time that the Aussie was too high, the RBA board appears to now be comfortable with an Aussie around 73c.
Then we can consider what the RBA’s thinking on unemployment has been for the past couple of months, based on this from the July statement:
“In Australia, the available information suggests that the economy has continued to grow over the past year, but at a rate somewhat below its longer-term average. The rate of unemployment, though elevated, has been little changed recently.”
Yesterday’s statement read:
“In Australia, the available information suggests that the economy has continued to grow. While the rate of growth has been somewhat below longer-term averages, it has been associated with somewhat stronger growth of employment and a steady rate of unemployment over the past year.”
Previously the RBA had been expecting unemployment to continue rising to a peak of 6.5%, but now it appears that is no longer the assumption. Friday’s Statement on Monetary Policy will provide new forecasts.
So where does this leave us with regard the RBA rate cut most have been expecting/hoping for some time in the second half? Well consider that the Aussie dollar is suddenly a cent higher at US$0.7380. Rate cut? Another 25bps off 2% will make little difference, and it appears it ain’t gonna happen now anyway.
And while we’re throwing up quotes, this was me yesterday:
“Utilities and the telco were also out of favour on the day, but may well be popular tomorrow if recent volatility is any guide.”
Yesterday utilities rose 1.5% and the telco 0.8%. The two consumer sectors managed to finish with 1% gains, while energy was the downer with a 1.4% fall.
Rate Rise
Wall Street is rather fixated with Apple at present, the biggest stock on the market, which having broken down through its 200-day moving average continues to move south post a pretty decent earnings report last week. The problem for Apple is that if you are an innovator, you have to keep innovating to keep investors interested. We’ve now got the iWatch, whereto from here?
That page appears blank at the moment, so no reason to buy Apple. Wall Street had nevertheless been choppy all morning before Atlanta Fed president Dennis Lockhart opened his mouth.
Lockhart told the Wall Street Journal it would take a “significant deterioration” in the US economy from here for him not to support a rate hike in September. Lockhart is an FOMC member, and his comments follow those of St Louis Fed president and FOMC member James Bullard last week that the economy was in “good shape” for a September lift-off.
More signs the Fed is quietly preparing the market for a decision that’s already been made? Last night the US ten-year yield rose 6 basis points to 2.21% and the US dollar index jumped 0.5% to 97.98. The Fed funds rate futures are nevertheless stubbornly suggesting the chance of a September hike is zero.
Commodities
One would normally expect the jump in the greenback to impact on commodity prices but having fallen steadily of late, base metal and oil prices enjoyed some short-covering relief last night.
All base metals posted small gains except for lead, which jumped 2%, and tin, which fell 1.8%.
West Texas crude rose US65c to US$45.95/bbl and Brent rose US60c to US$50.25/bbl.
Iron ore bucked the trend in falling US30c to US$55.00/t.
Gold didn’t know what to do, and is steady at US$1087.50/oz.
Nor did the greenback have any influence on the Aussie, which as noted is a cent higher at US$0.7380.
Today
The SPI Overnight closed down 16 points or 0.3%.
It’s service sector PMI day across the globe today, including locally and in China (Caixin). Tonight sees the ADP private sector jobs number in the US, ahead of Friday’s non-farm payroll release.
On the local stock front, Genworth Mortgage Insurance ((GMA)) and takeover target Skilled Group ((SKE)) are among those reporting earnings today.
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