Daily Market Reports | Nov 03 2015
By Greg Peel
The Dow rose 165 points or 0.9% while the S&P gained 1.2% to 2104 and the Nasdaq jumped 1.5%.
Breach
A weak lead from Wall Street and disappointing Chinese PMI numbers over the weekend ensured the dour mood prevalent at the end of October carried into the new month on Bridge Street yesterday. The Chinese numbers could have been worse – the manufacturing PMI was flat but still below 50 while the PMI for the larger services sector was weaker but still above 50 – but the market was hoping Beijing’s stimulus efforts might have started to produce results by now.
The mood did not improve when Westpac released its profit result and warned of tough times ahead in Australian banking. The banks led the index lower from the bell and when support was breached at 5200, the selling became more widespread.
Australia’s data releases on the day were not so encouraging either. Our own October manufacturing PMI fell to 50.2 from 52.1, the rate of house price growth cooled in the month, and TD Securities’ core inflation gauge remained flat at 1.7%, providing no additional impetus for the RBA to cut today.
The good news is building approvals grew by a better than expected 2.2% in September, although analysts are expecting that pace to start cooling soon as well.
There was also some good news in the form of Caixin’s independent Chinese manufacturing PMI, released around midday, which showed an increase to 48.3 from 47.2. This is still sub-50 but at least heading in the right direction.
It was around this time the index decided it had been sold down far enough on the day. It was down around 1.4% at lunchtime and there it basically remained through to the close.
By the closing bell the banks had provided the stand-out weakness with a 1.9% fall, backed up by the telco with 1.6%. Other sector falls were less dramatic but no sector finished in the green, confirming market-wide selling on the technical breach.
A day is a long time on the market and we see the SPI Overnight up over 60 points this morning, suggesting we could rally all the way back today.
Going around the grounds on manufacturing PMIs, Japan saw an increase to 52.5 from 51.0 to mark its strongest pace in a year, the eurozone saw a better than expected rise to 52.3 from 52.0, and the UK shot to 55.5 from 51.8 when economists had forecast a decline.
All these regions appear to be benefitting from lower currencies, the offset of which is the US dollar. Thus the only disappointing global PMI result was the US figure of 50.1, down from 50.2, although that was still above a consensus forecast of 50.0.
Merger Monday
Interestingly, the Fed has never raised rates when the manufacturing PMI is this low.
Positive earnings reports and a slew of announced M&A deals provided a positive opening for November on Wall Street, and the major indices rallied steadily throughout the session. The S&P500 is now back above 2100 for the first time since the August break-down and hence back inside the trading range that dominated Wall Street all year up to that point.
The China scare has now been erased.
Investors are no doubt fired up about the current obsession with November-December typically being positive for stocks. Last night’s popular historical statistic was that if October is positive, November-December sees a further rally 78% of the time.
The mood may nevertheless change later in the week when the all-important non-farm payrolls data are released. Just how Wall Street will respond is never quite clear. A strong jobs number would put a December Fed rate rise back in focus.
Commodities
The US dollar index was flat last night at 96.93.
Trading on the LME was again subdued, with nickel rising 1%, zinc falling 1% and all other metals barely troubling the scorer.
After one day’s respite, iron ore is down US40c at US$49.10/t.
The oils were marginally lower, with West Texas falling US30c to US$46.14/bbl and Brent falling US72c to US$48.79/bbl.
Gold fell US$7.10 to US$1134.60/oz. It is interesting to note the US ten-year bond rate is now back at 2.19%, following a 4 basis point gain last night. This is where it began 2015 – a year expected to bring the first Fed rate rise. First it was maybe March but there was too much snow so it became June, then it was September, and now it’s December, maybe. Gold traders don’t seem keen to be caught out.
The Aussie is flat at US$0.7136 ahead of today’s RBA decision. The odds of a rate cut have now slipped according to consensus expectation.
Today
The SPI Overnight closed up 62 points or 1.2%, which if accurate means we would not only erase the best part of yesterday’s fall but also return to above the 5200 mark.
Victoria is closed today, so trading may be a little thinner, and will certainty thin out from lunchtime on. As it’s Cup Day, no local corporate is foolish enough to hold an AGM or release a result today, although there’s plenty more to come in the month.
The RBA will nevertheless release its statement at 2.30pm.
My tips for today: no cut and, given all the M&A going on both locally and abroad, The Offer.
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