Daily Market Reports | Oct 06 2015
By Greg Peel
The Dow closed up 304 points or 1.9% while the S&P gained 1.7% to 1987 and the Nasdaq rose 1.6%.
A week is a long time
Most of Australia was enjoying a long weekend yesterday but that didn’t deter those who saw an opportunity to buy into a beaten-down stock market. It’s amazing to think that less than a week ago we were staring at a possible second leg down in the correction to maybe 4800 or lower, and today we will potentially hit and even breach the top of the recent range at 5200, in which case the second leg bets are all but off.
What changed in the meantime?
The Fed story, that’s what. As painful as it is to admit it, it looks like we’ll now be debating the will they/won’t they question on the first rate rise right through until March. At least, that’s where the US markets have now determined the greatest probability lies. Last Friday’s jobs report changed everything.
For most of 2015 Wall Street had been trading on a bad news is good news theme with respect to Fed policy, rising every time it appeared the Fed would keep rates lower for longer. But when it became clear the Fed was getting very close to making the first move, Wall Street switched around to a “just do it” attitude, increasingly frustrated with the uncertainty the central bank was perpetuating. Bad news became bad news.
But Friday’s shocker of a September US jobs report, including a downward revision to an already weak August and also to July has put Wall Street right back in its box. The uncertainty has ended, for the time being – not the way we expected, with the first rate rise, but due to the data, upon which the Fed is dependent, suggesting it’s simply too early right now.
That postponement of uncertainty led to the big reversal on Wall Street on Friday night, from 250 Dow points down to 200 points up at the close. The Dow spun on 16,000 and the S&P on 1900, and in technical terms it was a “key reversal day” having hit a lower low but closing at a higher high than the day before.
Everything bad is good again. And last night Wall Street carried on with that theme.
Yesterday it was a case of “buy everything” on Bridge Street. The most beaten-down sectors were more heavily favoured, such as materials, up 3.5%, and energy, up 2.9%, bit otherwise every sector put in gains of 1.5 to 2%.
There were some positive data releases out yesterday locally, but realistically they didn’t make much difference. The ASX200 opened strongly and had established its rally for the day within the first hour, largely drifting from there all the way to the close.
ANZ’s job ads series showed a strong 3.9% gain in September, following 1.3% in August, to suggest a monthly trend of 1.0%. “Growth since mid year now appears a little stronger than previously,” said ANZ.
A 0.3% rise in TD Securities’ inflation gauge in September takes us to 1.9% annual and the strongest pace since November last. The core rate remains at 1.6% annual, still below the RBA’s 2-3% comfort zone.
So no rate rise today. And no cut either.
Australia’s service sector PMI fell to 52.3 in September from 55.7 in August but at least remains above 50, suggesting expansion, and it’s the service sector providing the bulk of ANZ’s job ads trend.
News that the Trans-Pacific Partnership trade agreement had been settled was also likely a positive for the market yesterday, but as I suggested, I don’t think any of the above mattered that much.
As you were
The US service sector PMI fell to 56.9 from 59.0. Hooray! Everything bad is good again.
The eurozone services PMI fell to 53.6 from 54.3. Bravo! More QE from the ECB is on the cards. The German stock market was up 2.7% and the French up 3.5% last night. The UK PMI fell to 53.3 from 55.6. Ra Ra! The Bank of England won’t be raising anytime soon. The London market was up 2.8%.
The mood carried over to the US, where Wall Street opened higher and continued to rally all session, closing pretty much on its highs. The 300 gain for the Dow makes it 750-odd points from the initial negative reaction to Friday’s jobs report.
It wasn’t that long ago 750 points would represent a solid year.
Emerging markets also enjoyed strong sessions yesterday, given the threat of an accelerated currency crisis due to a Fed rate rise was killed off on Friday night. China remains on holiday, but a downgrade of Chinese GDP expectations for 2015 to 6.9% from 7.1% by the World Bank suggests more stimulus will be forthcoming from Beijing as well.
It seems only in Australia are we looking for good news to be good news, given we’d rather not see our economy going down the gurgler as many have feared. And we, too, may see some stimulus shortly – of the fiscal kind. It is expected the new government will have more foresight on such matters.
Commodities
The Chinese holiday has ensured quiet sessions on the LME this week. Base metals traded back and forth on low volume last night and closed mixed, with copper up 0.8% but lead, nickel and zinc all down 2%.
The US dollar index is up 0.2% at 96.09, mainly because the euro is weaker on expectations of extended QE.
Iron ore is unchanged at US$54.00/t.
The oils were stronger again last night, but still not really going anywhere. West Texas is up US68c at US$46.84/bbl and Brent is up US$1.11 at US$49.38/bbl.
Having rallied strongly on Friday night, gold is off US$3.50 at US$1135.80/oz.
The Aussie is up 0.5% at US$0.7085, with a Fed rate rise now less likely this year.
Today
The SPI Overnight closed up 66 points or 1.3%, If accurate, this would take us up through the top of the recent trading range at 5200.
Australia’s August trade balance data is out today, and this afternoon the RBA will meet and leave its rate on hold.
China remains closed today.
Rudi will appear on Sky Business three times this week. First on Wednesday, 5.30-6pm (Market Moves), then on Thursday at noon (Lunch Money) and again later that day on Switzer TV (between 7-8pm).
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