Daily Market Reports | May 31 2016
By Greg Peel
Last night’s public holidays closed US stock and bond markets and UK markets including the LME.
Losing Streak
It was thrill-a-minute stuff on the local bourse yesterday. The ASX200 whipped around violently to be as much as 10 points up from the opening bell and 14 points down mid-morning. The whipsaw ride continued through the afternoon before traders were finally able to draw breath with a close of up 2.
Jokes aside, there was more than one reason the local market should put in a quiet session yesterday.
The lead-in from Wall Street was insignificant, following commentary from Janet Yellen that neither confirmed nor denied a June Fed rate hike. US markets then shut down for the long weekend, ahead of a week full of economic data releases culminating in the last monthly jobs report before the next Fed meeting.
It is also a big week for Australian data, with tomorrow’s GDP set to provide either greater or lesser cause for the RBA to cut again in August.
And on that note…
Yesterday’s March quarter data showed company profits falling by 4.7% when economists had forecast a flat result, to be down 8.4% year on year. The December quarter number was also revised down to a greater fall than previously published.
Among the sectors, mining profits (which includes energy) fell 9.6%, manufacturing 14.5%, utilities 5.6% and property and business services 6.4%. The stand-out positive contributors were transport and storage up 5.3% (online shoppers?) and accommodation and food services up 3.8%. Construction only managed a 0.6% gain, as did retail trade.
Wages data within yesterday’s release underscored the current trend. Employment is presently growing at an annual rate of 2.1% and yesterday’s numbers noted 3.5% growth in wages. But because 60% of jobs growth is part-time, annual weekly wages growth, CBA economists calculate, is only 1.4%.
Put the profits and wages data together and there is no reason to foresee anything other than low inflation. On that basis, actual GDP result notwithstanding, there is little to suggest the RBA will not cut again.
Indeed, the Aussie dollar did drop yesterday on the data release to around 70.5, but has recovered overnight to be unchanged at US$0.7183, despite the US dollar index being little changed. The market is already pricing in an August rate cut.
The other reason the local market went a whole lot of nowhere yesterday is largely a technical one. We are stuck on a pivot point at 5400. This week’s data here and in the US will be critical to central bank monetary policy, and hence we are likely seeing some pause for thought among investors.
But despite the flat close for the ASX200, there was actually some movement among sectors yesterday. Materials was the only major loser, falling 0.7%, while energy was up 0.7%, consumer staples was up 0.8% and discretionary 0.5%, with healthcare up 0.5%. The banks and other sectors went nowhere. Clearly materials has regained a lot of its market cap oomph lost when the big miners were trolling the bottom.
Commodities
No base metals, with the LME closed.
West Texas crude is little changed at US$49.62/bbl.
Iron ore fell US60c to US$50.30/t.
Gold is down US$7.90 at US$1204.90 despite the US dollar index being little changed at 95.65.
Today
The SPI Overnight closed down 7 points.
Tonight in the US brings house price and consumer confidence numbers. Most critical, however, will be the April personal income and spending data, including the Fed’s preferred PCE inflation measure.
Data releases in Australia today include April building approvals and private sector credit, along with the March quarter current account, including the terms of trade.
Rudi will Skype-link with Sky Business today to discuss broker calls. Macquarie has initiated coverage on lithium stocks. Should be fun.
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