Daily Market Reports | Sep 15 2015
By Greg Peel
The Dow closed down 62 points or 0.4% while the S&P lost 0.4% to 1953 and the Nasdaq fell 0.3%.
Mal Content
Is it just me, or did that all seem to happen rather quickly?
There is little doubt yesterday’s rather bizarre trading pattern for the ASX200 included an overlay of domestic political uncertainty, although such intraday volatility is typical of a market attempting to consolidate after a correction. Commentary continues to point to “weak” Chinese data delivered over the weekend, but a 60 point opening rally for the Australian index might suggest otherwise.
As “weak” data goes, Sunday’s numbers were on the less disappointing side, given a slight “miss” on industrial production forecasts was offset by a slight “beat” on retail sales. But sixty points did seem a stretch, particularly when there are still those looking to sell out of investments for fear this correction is not necessarily over yet.
Thus we went back down again, and then up again, and then down into the red, briefly, before closing up 24 points, which on a close-to-close basis looks like a quiet day. But by the four o’clock bell, domestic uncertainty was rife.
As has oft been noted, stock markets are ambivalent to the political stripe of government – there is no correlation in Australia of market performance and Coalition or Labor governments – and presumably that stretches to who is actually in charge of the government. What markets fear is uncertainty, and this year constant talk of the prime minister being challenged and the treasurer being replaced has provided plenty of it at a time of global upheaval.
Last night the uncertainty ended. One presumes that unlike the prime minister he replaced, Abbott will not haunt the corridors and manage to muscle his way back in at the eleventh hour. Aside from ending the uncertainty, Turnbull brings to that table some distinct differences that should register as positives with the stock market: economic and business experience, widespread electoral popularity, oratorical eloquence (aiding policy justification) and climate change recognition. The latter might send some ripples through the fossil fuel industry, but when we consider many large energy companies are actually leading the alternate energy drive, up until now with a hostile government, the critics will find themselves a lonely collective.
But enough about politics, what’s done is done, and we still have to get past Thursday’s Fed rate decision, whatever that may be. Although it’s interesting to note the Aussie has done nothing but run up since the spill was announced, despite a steady US dollar.
Follow the Oil
If Bridge Street seemed unfazed about the Chinese data from yesterday’s opening bell, perhaps even seeing “not terrible” as “good”, the same cannot be said for commodity markets overnight. The weak August Chinese industrial production number was cited in the metals and oil exchanges as the reason for downside.
If there is an element of fear driven by the notion Beijing has been throwing everything bar the kitchen sink into stimulus and it has not worked, we should at least note that the sledge hammer of currency devaluation occurred in August and will take time to have an impact, and indeed the earlier interest rate and RRR cuts need, in theory, a good six months of run-time before their impact becomes evident.
The commodity markets are a hotbed of frayed nerves at present, and every little thing looks catastrophic. The oil markets are a case in point, and last night when WTI opened lower, so did Wall Street.
It was Rosh Hashana last night, ensuring trading volumes were light. While the Dow was down a hundred points at one stage before picking up towards the close, it was the least volatile session of intraday activity since August 18. Aside from the Jewish holiday, Wall Street probably would have banged along the flatline if it were not for oil. All anyone can talk about otherwise is the Fed, and no one knows what Thursday will bring.
Commodities
West Texas crude was down over 3% before kicking back up in electronic trading to be down only 1.4% over 24 hours, or US63c, to US$44.15/bbl. Interestingly, Brent did not rebound, and is down 3.2%, or US$1.56, to US$46.59/bbl.
This is interesting because it means the Brent-WTI spread is back at roughly two dollars. For a long time this was considered the “normal” spread and very infrequently would that gap move much one way or the other, except in the last decade, which has seen it blow out to as much as US$27. It’s taken that long to come back again, largely reflecting the gradual easing of storage and transport problems in the US.
Only tin managed to hold up against China-driven selling pressure on the LME last night. Aluminium, copper and lead all fell around 2% and nickel and zinc fell 4%.
Iron ore fell US$1.00 to US$57.50/t.
The falls had nothing to do with the US dollar, which was only a tad higher at 95.26 on its index. Gold, subsequently, is as good as steady at US$1108.80/oz.
The Aussie does pay attention to the US dollar, given it is the denominator of the exchange rate, so the 0.7% gain last night to US$0.7138 all came out of Canberra.
Today
The SPI Overnight closed down 29 points or 0.6%, which, in isolation, is simply a reverse of yesterday’s ASX200 close and a reflection of Wall Street’s and commodity markets’ responses to the China data. So if this is the starting point, we will then have to see whether the Turnbull factor in the currency can be replicated in the stock market.
The minutes of the September RBA meeting are out today, and it will be interesting to read what the board felt about China’s stimulus efforts and Fed speculation.
The Bank of Japan meets today but presumably will do nothing until that other central bank makes a decision, if anything was going to be done anyway.
There are some important US data releases due tonight, including August industrial production and retail sales. However, as I have suggested, it would be a flippant “data-dependent” Fed to wait for such late mail to inform Thursday night’s decision.
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