Daily Market Reports | Jun 17 2016
By Greg Peel
The Dow closed up 93 points or 0.5% while the S&P gained 0.3% to 2077 and the Nasdaq rose 0.2%.
Ups and Downs
There were several factors at play in the local market yesterday, belied by a flat close. Brexit, central bank policy and the derivatives expiry were all potentially influential.
The index shot up from the opening bell to be 50 points higher at around 11am, peaking just under 5200. Thereafter the session played out as a slow sell, all the way to be as good as unchanged by the closing bell.
The decision by the Fed overnight not to raise its cash rate came as no surprise, but what did surprise is the apparent capitulation form the central bank after having talked up rates rather hawkishly since April. Janet Yellen has decided, about five years after everyone else, that low interest rates may now be “the new normal”. Was it one bad jobs number? Was it zero rates in Germany? Whatever the case, the FOMC has swung from suggesting three rate cuts to come this year to suggesting one, maybe.
If Fed dovishness is now actually entrenched, the pressure is back on the RBA to cut. US rate hikes would drive the US dollar higher and thus the Aussie lower, but now the Aussie is potentially under threat of rising again in its role as a safe haven, high-yield currency.
Thoughts of another cut may have been derailed by the better than expected addition of 17.900 new jobs in Australia last month, if it not for the fact they were all part-time. Not a soul was given a new full-time job last month, according to the ABS. The unemployment rate remains steady at 5.7% but means little, given the year to May has seen net jobs growth of 1.9% made up of 0.8% full-time and 4.4% part-time.
Employment is supposed to put money in consumers’ pockets. Part-time employment puts in far less. If we were able to add together the part-time hours to make a full-time job, how many new “jobs” would the numbers really show?
Thus it was no surprise the Aussie actually fell yesterday on the release of the employment report, rather than rising as a “beat” might otherwise have suggested. The drill-down is supportive of further rate cuts.
And while on the subject of central banks, the Bank of Japan surprised yesterday by doing nothing. The BoJ’s experimental drop into negative rates has had the opposite effect of that the central bank would have hoped for, actually sending the yen higher. Markets anticipated at least a bump-up of QE yesterday, if not a further foray into the negative. But nothing transpired, so the yen shot up again.
It has become apparent, over time, that the BoJ only acts when no one is expecting it and not when everyone is.
Whatever impact central bank shenanigans had on the local market yesterday, the Brexit cloud still hung, and market protection in the form of ASX index options, SPI futures and futures options all expired. Assuming investors are keen to remain protected, positions had to be rolled over by the close yesterday, if they hadn’t been already, putting downward pressure on the market.
The wash-up at the closing bell was a very mixed bag of sector moves. The defensives of telcos and utilities found support but the biggest move up came in consumer discretionary, thanks to the announced Crown Resorts ((CWN)) restructure and subsequent 13% pop. A bounce in base metal prices had materials in the green but a fall in the oil price had energy in the red, and the banks were lower again.
But today is a new day, with expiry now over and overnight developments to consider on a Friday.
Big Ups and Downs
Europe went back into selling mode last night as stock markets and the euro fell, supposedly on ongoing Brexit fear, a lack of any BoJ action and let’s face it – the sort of confusion that tends to keep investors out. The mood carried over onto Wall Street where the Dow fell 170 points from the open.
Euro and pound weakness allowed the US dollar index to surge despite the stronger yen, and as every man and his dog talks up gold, the safe haven traded up to US$1315/oz despite dollar strength. Oil tanked 4%.
There was further confusion on the news a British pro-stay MP had been shot and killed while campaigning, prompting Prime Minister Cameron to call a halt to all Brexit campaigning. Did this mean the vote itself would be delayed? It appears not.
But then another poll was released. It was not quite a week ago the world went into a tailspin on a poll showing 55% of Britons intended to vote “go”. Last night’s poll suggested 65% now want to stay. There’s only one poll that matters of course, as any polly will tell you if they’re behind, but at the very least it now appears a Brexit is a long way from a done deal.
The Dow rallied back to be up a hundred just before the close. The US dollar index came right back to flat at 94.63. Gold crashed back down to be down US$13.50 over 24 hours at US$1278.00/oz. Oil rebounded, but is still down 3%.
Throughout all the confusion, the German ten-year yield is now officially negative at minus 0.02% and the US ten-year has fallen to 1.56%.
And to top things off, tonight is quadruple witching in the US, with June representing the biggest derivative expiry volumes of the year.
The Brexit vote is five more trading sessions away.
Commodities
West Texas crude is down US$1.44 at US$46.05/bbl.
The LME closed with the US dollar at its peak, thus all base metals bar lead are 1-2% lower.
Iron ore is unchanged at US$50.20/t.
The Aussie is down 0.6% at US$0.7362.
Today
The new September expiry SPI Overnight closed up 35 points or 0.7%. Those wondering why the actual price of the futures has suddenly dropped sharply from the June contract must appreciate the futures now need to discount a full three months of carry.
There is very little of note on the global calendar over the next 24 hours, with quadruple witching on Wall Street the highlight at this time of heightened concern.
Rudi will Skype-link with Sky Business at around 11.05am today to discuss broker calls.
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