Daily Market Reports | Dec 23 2015
By Greg Peel
The Dow closed up 165 points or 1.0% while the S&P rose 0.9% to 2038 and the Nasdaq gained 0.7%.
Getting Square
Today marks the last full session for the ASX ahead of a half-day tomorrow and a four-day break over Christmas. Monday is a public holiday to account for Boxing Day. For local traders, this abbreviated week is all about squaring up positions in order to relax over the break, and for many it is a year-end exercise, given tumbleweeds will roll down Bridge Street in the abbreviated week before New Year.
On Monday we saw the ASX200 tumble then recover, ultimately defying a big drop on Wall Street, and yesterday we saw the index leap 50 points on the open, thanks to a Wall Street rally, before falling back to flat over session. A look at yesterday’s sector move s suggests everything being bought/sold on Monday was sold/bought yesterday as the square up process plays out.
Forex traders appear to be in the same mindset, given the Aussie rallied solidly throughout yesterday’s local session to be up 0.6% over 24 hours at US$0.7232. The US dollar is only slightly weaker so what we likely saw was short covering ahead of the holiday.
Two flat closes on two days suggests we’re unlikely to see anything much else today or tomorrow.
Low Volume
Wall Street has managed to put together a couple of sessions of rally but no one is suggesting relief that the Santa rally has finally arrived. Low volumes imply a lack of buying conviction and thus, again, squaring up ahead of the holiday rather than setting new positions. In contrast to Australia nonetheless, where we’re looking forward to a lazy, hazy summer break, it’s pretty much back to business as usual next Monday night for Wall Street.
The final revision of US September quarter GDP, released last night, showed a slight tick down to 2.0% from the previous 2.1% estimate. Consensus suggested 1.9%, so it’s a mild win, but also very old news by now. I say “final” but in fact the number can be revised again on the release of the first estimate of December quarter GDP.
On a year to date basis, the US economy grew by 2.2% over the first nine months of 2015. The December quarter is not expected to bring any great acceleration in growth, suggesting annual growth will come in under 3% for the tenth straight year. That’s the slowest stretch ever recorded since WWII.
But hey, the Fed’s already made its move, and a no other time since WWII has the US cash rate been at zero. So while one might question why the Fed would choose to commence a tightening cycle in such a dour growth environment, the other side of the coin is that even 2% growth suggests a zero rate is too low.
We are expecting to spend most of next year debating just when the next Fed rate rise will come, but we might also consider that in moving from 0-25 to 25-50 basis points, the Fed has also given itself somewhere from which to cut if necessary.
But let’s not worry about that ahead of Christmas.
Commodities
A funny thing happened in oil markets last night.
Oil markets mark an official closing price late in the afternoon New York time but continue to trade electronically around the clock. FNArena takes a snapshot of prices each morning well after the official close to provide a more up to date reading. On this morning’s snapshot, West Texas crude was up a tad at US$36.20/bbl and Brent was unchanged at US$36.18/bbl.
Spot the anomaly?
For the first time since 2010, WTI is trading above Brent, and this was also the case at the official close last night. The reversal of what was once a significant premium to Brent from WTI represents anticipation of the longstanding US crude export ban being lifted. It’s not yet official but it is assumed only a rubber stamp is needed from here.
It’s been noted that WTI had fallen to a seven-year low this month but more notably, Brent has fallen to an eleven-year low. When US oil hits the oceans, Brent will no longer lay claim to being the global benchmark export price.
The London Metals Exchange was apparently a bit of a ghost town last night as many traders have already headed home for Christmas. This week has seen to-ing and fro-ing of base metal prices on low volumes that has not leant itself much to fundamentals. Last night saw more fro-ing than to-ing, with nickel down 2%, copper, lead and zinc down 1% and aluminium down 0.5%. But we can’t read too much into this week’s moves.
It might just be a slightly merrier Christmas for iron ore miners. Iron ore traders are unlikely to be squaring up ahead of a Christmas most of them don’t celebrate but following a long, slow demise for the iron ore price these past months, there was always a chance of a rebound once prices reached oversold level. This morning the iron price starts with a 4, which is at least psychologically heartening. It’s up US80c at US$40.20/t.
The US dollar index is down 0.2% at 98.21 but gold is down US$6.50 at US$1072.20/oz.
Today
The SPI Overnight closed up 24 points or 0.5%.
Wall Street will see a late rush of pre-holiday data releases tonight, including new home sales, durable goods, personal income & spending and consumer sentiment.
Tomorrow the ASX will close at 2.10pm Sydney time and tomorrow night the NYSE will close at 1pm New York time.
Well, that’s it from me for 2015. Merry Christmas and Happy New Year to all and I hope you have a relaxing break, as I intend to do.
The shutters will come down this afternoon on FNArena’s regular daily service and roll up again on January 14. The website will remain fully accessible over that period. I’ll be back with the Overnight Report later in January.
Have a good one.
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