Daily Market Reports | Sep 25 2015
By Greg Peel
The Dow closed down 78 points or 0.5% while the S&P lost 0.3% to 1932 and the Nasdaq fell 0.4%.
As I write, Janet Yellen is droning on in the background as she delivers a speech to the University of Massachusetts entitled “Inflation Dynamics and Monetary Policy”, which is proving every bit as riveting as the title suggests.
There is no Q&A session following, and while Wall Street arguably squared up last night in anticipation Yellen might say something significant regarding the first rate hike, all we have learnt is that the FOMC is still anticipating a rise this year.
So nothing new there.
Yield
Another day, another big market move on Bridge Street, and yesterday it was the turn of the upside. While we might argue that the failure of Wall Street to fall out of bed on the Chinese PMI news, and a bit of a rebound in VW-hit Europe, was enough to provide relief, realistically we simply bounced off 5000 for the fifth time.
I’m happy to call Tuesday’s actual 4998 close to be close enough to 5000.
And it appears we still have plenty of investors lined up to buy yield when the opportunity presents. The smart move is to stay out on the really crazy days when the resource sectors are going nuts and also to give the banks a wide berth because they’ve now become a trader’s plaything.
The best performing sectors in yesterday’s 1.5% rally for the ASX200 were consumer staples (2.2%), utilities (2.0%) and the telco (1.8%). The banks only managed 1.5% and the resources sectors rebounded only modestly.
No one would argue that reliable yield is very attractive in this market at present, given China fears have sunk all boats. “Reliable” at this point does not include the likes of a Woodside (fixed payout but falling earnings), a BHP (progressive dividend but on falling earnings) or even a bank (heyday over, payouts likely to be cut). “Reliable” is supermarket free cash flow, broadband usage, gas pipelines et cetera.
And as we have seen quite glaringly this year, companies offering yields that don’t look spectacular now but offer significant growth are outperforming across certain sectors.
But still we are beholden to volatility, which must yet work its way out of the system. Next Thursday the market is set to enter that uncomfortable seasonal period traders typically refer to as “October”.
Trouble In Tonka Toy Town
European stock markets took a dive again last night as the beast that is the VW scandal grew another head. Government authorities across Europe, including in the two big automaker economies of Germany and Italy, announced they will be testing all diesel vehicles, V-dubs or otherwise, for emissions irregularities.
In another development, Auto Bild magazine last night accused BMW diesel engines of producing greater than the regulated level of emissions, fuelling the fire of “Omigod, they’re all doing it”. BMW nevertheless strenuously denied the accusation and Auto Bild subsequently admitted they might actually have had it wrong.
This is a scandal that won’t go away any time soon. It will take a long time for VW to recover and a long time for Germany’s manufacturing reputation to be restored. Elon Musk will be loving it.
Speaking of things diesel, leading heavy equipment manufacturer Caterpillar last night issued a profit warning ahead of next month’s US result season, slashing its revenue forecast and announcing job cuts of up to 10,000 over the next couple of years. Like virtually every company in the resource sector and resource service sector globally, Caterpillar is being forced to restructure and refocus.
Aside from the 7% plunge in Caterpillar shares being worth around 30 Dow points alone, the profit warning served to rekindle global growth fears once more. Within the first hour, the Dow was down 260 points.
The global picture overwhelmed the domestic picture, given last night’s US data releases were not too bad. US new home sales rose 5.7% in August, beating forecasts, and while durable goods orders fell 2.0%, this was all lumpy aircraft orders and met expectations.
As an aside, the German IFO business sentiment indicator showed an unexpected rise last night. It is a pre-VW measure so has to be seen in that context, but suggested to IFO that global growth fears have not hit German sentiment as much as one might assume.
Wall Street did not linger long at the low, and steadily rallied back to regain most of the opening loss by the close. A turnaround in oil prices proved supportive, and there was a suggestion of squaring up before Yellen said anything earth-moving, but also it was a case of the Dow approaching the psychological 16,000 mark at the depths and the S&P500 simultaneously eying off 1900.
Like 5000 in Australia, these round numbers are often where buy/sell orders are placed against the trend.
In the end, Wall Street, like Bridge Street, is simply banging around without a lot of conviction as the post-correction consolidation phase continues.
Commodities
Base metal markets are also attempting to consolidate. Aluminium, copper and lead all saw small moves to the upside last night while nickel, tin and zinc all rose 1.5-2%.
Iron ore is unchanged at US$56.80/t.
West Texas crude is up US38c to US$45.07/bbl and Brent is up US52c to US$48.33/bbl.
The big mover on the night was gold, which is up US$23.80 at US$1154.10/oz, despite the US dollar index being reasonably steady at 96.10. Given the move came pretty much all in one hit, rather than throughout the night, we can conclude that the trigger was a rate cut from the Norwegian Central bank to 0.75% from 1.00%, which sent the krone to a 13-year low.
The Aussie is steady just above US$0.70 despite another nostalgic wander into the swinging sixties yesterday.
Today
The SPI Overnight is up 2 points. Last Friday on Bridge Street was a wild ride of intense intra-day volatility. Maybe today will be more “Friday”.
Japan will release CPI data today and tonight a second revision of the US June quarter GDP result will be released.
Could be interesting if it’s an increase on the last revision of 3.7%.
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