Daily Market Reports | Apr 01 2016
By Greg Peel
The Dow closed down 31 points or 0.2% while the S&P lost 0.2% to 2059 and the Nasdaq was flat.
Delayed Reaction
Yesterday’s rally on Bridge Street was basically what I thought we might see on Wednesday in the wake of the Fed chair’s dovish speech. The ASX200 sold down by a similar percentage on Tuesday, possibly in fear of a more hawkish stance from Janet Yellen, so when the opposite proved true, it made sense that the index would recover.
The index tried to rally hard from the open on Wednesday but was immediately slapped down for a flat close. Nothing changed in the meantime, but yesterday we saw a rally equivalent to Tuesday’s plunge – not only in percentage move but in breath of sectors. Yesterday all sectors finished in the green by fairly similar amounts.
Buy Australia.
As to why the extra day was required is unclear. One can only assume end of quarter shenanigans played a part. Despite the benefits of a continually supportive Fed, the Aussie remains unsettlingly high. There was also some interesting local data out yesterday, but it doesn’t appear the market was going to pay much attention.
Australia’s housing market is cooling. Overall private sector credit rose 0.6% in February to provide a stable 6.6% annual growth rate. Housing credit rose by 0.5% for a 7.3% rate, down from 7.5% in late 2015. Investor housing credit rose by 0.6% for 7.6%, down from 11.0% in mid-2015.
New home sales plunged 5.3% in February. Analysts have been warning for some time of a bubble in apartment construction. Detached house sales fell 3.9% while apartment sales fell 10.9%. Oversupply in apartments is meeting tighter APRA lending rules and repriced bank mortgage rates.
Housing growth has been the major combatant against the plunge in resource sector investment over the past couple of years. While no one is expecting a housing crash, Australia’s economy will require the decline in mining investment to bottom out and commodity prices to stabilise if housing is not going to provide the same counterbalance it has to date. The good news is business credit rose 0.7% in February to a solid rate of 6.5% annual growth. As the CBA economists put it yesterday, “Firmer growth in non-resources related investment is the missing ingredient to broader-based growth outcomes”.
What a Quarter
The US indices may have closed with a whimper at the end of the March quarter last night but investors will be relieved to see the back of it. The S&P500 closed up 1.1% for the quarter which seems pretty ho-hum, until one notes that it had to rally almost 13% from the mid-February low to get there. March alone saw a 6.8% gain.
What drove that rally? Well we need look no further than the 17% gain for the energy sector and 20% gain for materials off their late January lows as commodity prices bottomed and short-covering rallies ensued. Assisting both commodity prices and the US export economy in general was a topping out of the US dollar, and further weakness from mid-March following the dovish Fed policy statement.
Did you know that US dollar gold posted its best quarter since …wait for it…1986?
Gold’s rally is indicative of what we might conclude really drove the rebound in world stock markets over the quarter. The BoJ moved to negative rates, the ECB pumped up its QE to shock & awe levels, the PBoC provided further stimulus and the Fed has now hinted that in retrospect, the December rate hike was not a good idea and there won’t be another one any time soon.
Central banks rule!
Commodities
Oil prices were little moved last night but at US$38.16/bbl, West Texas crude is trading 46% above its February low. Brent is up slightly overnight at US$39.60/bbl.
Over the course of the wild quarter, base metal prices have struggled to settle into any sort of pattern. The same was true again last night as nickel rose 0.5%, zinc 1% and aluminium 1.5%, while copper fell 0.5%, lead 1% and tin 1.5%.
With the US dollar index down 0.2% at 94.63, gold is up US$6.40 at US$1231.10/oz.
The Aussie is steady at US$0.7663.
Today
After yesterday’s surge, the SPI Overnight closed down 20 points or 0.4%.
Tonight sees the March US jobs report. While this monthly release has often been the source of much angst in recent years, Wall Street is now becoming increasingly ambivalent. The jobs number will come in around 200,000 and the unemployment rate – which no one believes – will come in at or under 5%. Yeah, yeah. The wage growth number will be scrutinised but Janet Yellen has already set the policy agenda, so inflation implications will also be met with disinterest.
There may also be a lack of volatility forthcoming from today’s Chinese PMIs. If they’re bad, the world will assume stepped-up stimulus from Beijing. If they’re good, well that’s good.
Australia, Japan, the eurozone, UK and US will also release manufacturing PMIs today/night.
Note that relevant Australian states go off summer time this weekend, so as of Tuesday morning, the NYSE will close at 6am Sydney time.
Rudi will skype-link with Sky Business today, around 11.05am, to discuss broker calls.
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