Daily Market Reports | Sep 01 2015
By Greg Peel
The Dow closed down 114 points or 0.7% while the S&P lost 0.8% to 1972 and the Nasdaq fell 1.1%.
Normal Programming
Yesterday Bridge Street witnessed what you might call a bog-standard second wave sell-off having rebounded sharply out of the depths of the correction last week. Markets never V-bounce off a bottom, they always suffer a choppy consolidation period and perhaps even a new low before an existing bull market trend can be re-established.
The clear case in point of such a second wave was provided yesterday by the energy sector. The oil price jumped 6% overnight, yet the local energy sector closed down 1.2%. This just goes to show we were seeing a combination yesterday of traders who bought perceived oversold stocks at their depths taking quick profits, along with Johnny-come-lately selling from investors who were caught in the headlights the first time around.
It was also the last day of the month, and as such a time to put to bed the worst month for the index since the GFC. Most of the damage was done from the opening bell, but there was some further choppiness as the day proceeded. Selling was relatively even across sectors with one exception. With a day’s delay, investors decided Woolies is very sick patient waiting for help to arrive in the form of a new CEO. The consumer staples sector outperformed to the downside with a 2.5% fall.
The lesson for Woolies is: never take the status quo for granted.
Yesterday’s private sector credit data were mildly encouraging, not that the stock market is focused on such trivialities as the local economy at present. Growth of 0.6% in July came in just ahead of forecasts, thanks to a better than expected gain in business credit, which rose 0.7% alongside housing credit’s 0.6% growth.
Housing credit is still running at 7.4% annualised growth to business credit’s 4.8%, which remains low by historical standards. Investor housing credit also rose by 0.6% in the month but – and this is the “but” FOMO buyers might want to pay attention to – it’s the slowest monthly pace of investor credit growth since October 2013.
[FOMO: fear of missing out]
June quarter data showed gross company operating profits fell 1.9%, split into a 1.1% gain for non-mining and a 9.8% plunge for mining. Net profits are down 3.9% year on year, but it’s all about commodity prices. Wages have only risen by a paltry 1.6% over the same period, but they did rise 1.1% in the June quarter, which is mildly encouraging.
Just Some Bad Apples
The Chinese government has confirmed it will no longer be sending in the Plunge Protection Team to prop up the stock market, as the source of the selling has been identified. Jolly good work chaps. Apparently some two hundred rogues were spreading false and malicious online rumours about the market, fuelling the panic.
And there we were all thinking it was a correction.
These despicable outlaws have now publicly confessed and expressed remorse for their actions. With the Communist Party’s PR exercise now over, it is unclear what their fate will be. But having informed the people it was all their fault, at least the families of the rumour mongers will now live.
Five Year Flop
A similar second wave of selling was seen on Wall Street last night, ensuring the worst month for the Dow in five years and the worst August in seventeen. But unlike the Australian market yesterday, the US market was keen to buy energy stocks on rising oil prices.
Having leapt 6% on Friday night, WTI jumped another 6% last night to mark a 27% rebound from the last intraday low. It looks like traders had set themselves particularly short, likely expecting to see the 2009 low price retested. While a 27% rebound in the oil price is very nice for global energy companies in the short term, it’s actually self-defeating in the longer term. If oil cannot sit at sub-50 prices for any length of time, requisite supply curtailment among high-cost marginal North American non-conventional producers will not transpire.
The rise in the WTI price nevertheless helped turn an initial 200 point drop in the Dow from the opening bell, and some renewed feelings of nausea among investors, into only a 100 point drop by the closing bell.
The mood on Wall Street is one of “this is what we expect to see anyway”, so there’s not too much concern. Tonight it will be September in the US, and we all know what that means. T minus 17 days and counting.
Commodities
The trigger for the oil price spike this time around was a US Energy Information Agency report noting US crude output in June fell 1.1% from May. But it’s all just an excuse really. And if WTI heads back to 60 from whence it fell, production will increase again.
West Texas rose US$2.77 to US$48.10/bbl and Brent rose US$3.04 to US$52.94/bbl.
The LME was closed last night for a UK public holiday.
Iron ore rose US20c to US$55.70/t.
Gold is steady at US$1134.50/oz and the US dollar index is off 0.2% to 95.97.
No one expects the RBA to cut today, but the Aussie is down 0.7% at US$0.7112.
Today
The SPI Overnight closed down 21 points or 0.4%.
Today is manufacturing PMI day across the globe, including in China.
Locally the focus will be on the June quarter current account and terms of trade ahead of tomorrow’s GDP result. Monthly building approvals numbers are also due, and the RBA will meet.
There are no earnings reports today (of any consequence).
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