Daily Market Reports | Dec 03 2015
By Greg Peel
The Dow closed down 158 points or 0.9% while the S&P lost 1.0% to 2081 and the Nasdaq fell 0.5%.
Quiet Achiever
Australia’s economy grew by 0.9% in the September quarter for a 2.5% annual rate, beating forecasts of 0.8% and 2.4%. It was a big improvement on the June quarter result, but indicates the economy is still growing at a sub-trend level.
It used to be accepted that 3.5% represented “normal” growth but in the post-GFC world, anything previously considered “normal” is being reassessed, particularly in light of an historically low global interest rate environment which, at least for the foreseeable future, appears to be the “new normal”.
The good news from the GDP result is that Australia’s non-mining economy is indeed growing sufficiently to offset the drag of declining mining investment. The housing sector remains the stand-out contributor, which is also providing a flow-on into consumer spending on household goods. And while investment might be declining now in mining, money previously invested has resulted in increased export volumes – at lower commodity prices, offset to some extent by a lower currency, but solid nonetheless.
The GDP result appeared to turn around what was an otherwise weak local market from the open yesterday, following on from Tuesday’s big surge. It was a very choppy session, suggesting a staunch battle between buyers and sellers, but the end result was only a small loss at the close. A profit-warning from Spotless ((SPO)) sent that stock down 40% and thus the industrials sector down 1.8%, distorting otherwise mixed and minimal sector moves.
Fear
Around 2pm New York time, news hit the wires of a mass shooting in San Bernardino, California. As the US markets came to a close the suspects were still at large.
The response on Wall Street was basically a hundred Dow points, given the Dow was down around 70 points before suddenly plunging to down 170 on the news, no doubt based on fear of another terrorist attack. Weakness prior was largely due to the WTI oil price once again trading below the US$40/bbl mark.
The US private sector added 217,000 jobs in November, up from 196,000 in October and beating forecasts of 185,000. The result does nothing to change the general assumption the Fed will raise in two weeks.
If there is to be a hike, Janet Yellen is still trying to assert that it is not yet a done deal. In a speech last night the Fed chair suggested she believed the two requirements for a hike – labour market improvement and inflation moving in the right direction – have been met, but the FOMC still intends to assess the data prior to making the decision. Presumably the highlight of “the data” as far as this decision is concerned is Friday night’s non-farm payrolls report, but there are plenty of other data releases due in the interim, including CPI numbers.
Whereas once Wall Street would surge and plunge on any little snippet of a clue about what the Fed might do, now the markets largely respond with a shrug. The US dollar index is up 0.2% to 100, helped by a weaker euro. The ECB meets tonight. The US ten-year bond yield closed up 2 basis points at 2.18%. The US stock market basically did not respond.
Commodities
Commodity markets nevertheless remain edgy over a Fed rate rise and the implications for the US dollar, particularly if we add in an extension of eurozone QE as markets are expecting tonight. It’s a double whammy for the greenback, and of little help to already weak commodity prices.
Last night saw the weekly US oil inventory data released, and they indicated the tenth weekly increase in crude supplies. West Texas crude settled in the afternoon at US$39.94/bbl but in later electronic trading has managed to sneak back up to US$40.07, down US$1.52 or 3.6% on the session. Brent is also down 3.6% at US$42.61/bbl.
Iron ore is down 2.4%, or US$1.00, to US$40.10/t. Analysts have for some time been assuming the potential of a number with a three at the front, and it looks very much like that time might be upon us.
Strength in the US dollar is forcing commodity funds to liquidate positions, which was evident last night in London as all metals bar aluminium fell once more. Copper fell 1.2% and zinc fell 2%.
The gold market likely saw the US private sector jobs number and Yellen’s “on track” comments as going further to cementing a December rate rise. Gold is down US$15.70 at US$1052.90. Analysts are now looking ahead to gold in triple digits in 2016.
The Aussie initially railed yesterday on the GDP “beat” but has since fallen on weaker commodity prices and the lower greenback. It’s down 0.3% over 24 hours at US$0.7308.
Today
With both oil and iron ore at the brink of trading under 40, the SPI Overnight closed down 53 points or 1%.
Australia’s October trade balance is due out today and across the globe it’s service sector PMI day.
All eyes will be on the ECB tonight. In stark contrast to counterpart Janet Yellen, Mario Draghi is a man who tends to offer clear intentions and then follow through on them. For some time Draghi has suggested a QE extension is possible if needs be, and European markets are assuming a “needs be” situation exists, particularly since Paris.
There is nevertheless an argument to suggest the ECB should not “ease” tonight nonetheless, given recent eurozone data have been reasonably positive. Inflation, or lack thereof, remains the sticking point. And one presumes the ECB cannot ignore the financial impact of the Syrian diaspora.
Rudi will make his usual weekly appearance on Sky Business' Lunch Money today (noon-1pm) and then later re-appears on Switzer TV, with Marty interviewing, between 7-8pm.
All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit. Click here. (Subscribers can access prices in the Cockpit.)
(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)
All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com
