Daily Market Reports | Jun 30 2016
By Greg Peel
The Dow closed up 284 points or 1.6% while the S&P rose 1.7% to 2070 and the Nasdaq gained 1.9%.
Solid
When the ASX200 rose 53 points on the opening rotation yesterday morning, it looked for all the world like the 84 point jump priced in the by the futures beforehand may prove accurate. But as now is becoming more the rule rather than the exception, the market completely reversed the opening rotation move in the second half hour, which in this case took the index back to only up 20.
We’ve reached the stage at which it is probably advisable for investors, rather than intra-day traders, to stay out of the market before 11am lest they be whiplashed. From 11am yesterday the market resumed its rally, in a slightly more measured fashion. And if a close of up 39 still looks disappointing against the futures’ 84 point call, we must acknowledge that some 60 stocks went ex-dividend yesterday.
Virtually all of those stocks are in the property/infra fund or utility space, ie, big dividend payers. We note that the only sector to post a fall yesterday was utilities, by 0.8%, which would all be dividends. Industrials was the second worst performer, with a 0.2% gain, and that’s where infra funds sit. Financials managed a 0.6% gain despite being where REITs sit.
Otherwise the bigger movers were materials, energy and telcos, with a solid gain also seen in consumer discretionary.
So realistically yesterday saw a bigger move up for the ASX200 than it would appear. With offshore markets posting a second night of solid rallies, the futures this morning are up 73 points. Only a couple of stocks go ex-div today.
But it is the last day of the financial year, so anything could happen, from last minute tax selling to rampant window-dressing. We really need to get today out of the way to see where the local market really stands.
Had a love affair with Tina
There was nothing new to report on the Brexit front last night, other than the fact the London market rallied back another 3.6%, France 2.6% and Germany 1.9%. Hands up those who predicted last Friday that the FTSE would be back where it was by the Wednesday.
The individual sectors within the FTSE are nevertheless looking a bit different compared to Friday. The banks are still shattered, as are any sectors impacted by the lower pound. The resource sectors have helped make up the difference, as have any sectors benefitting from the lower pound.
The pound has come back a-ways, but at 1.34 to the USD is still well below the 1.50 peak of last Thursday. Last night gold, which one might have expected to continue to pull back as panic subsides, rose US$6.80 to US$1318.30/oz. The US ten-year bond yield rose 2 basis points, but at 1.48% is still a long way down from the pre-Brexit 1.75% level.
In other words, the safe havens are still retaining their safe haven status, yet the risk assets that are stocks have wiped out a lot of the Brexit fall. Europe still has some catching up to do, but the UK is back and the S&P500, having fallen from 2100 to 2000, is back at 2070. And having fallen another 11% last night, the VIX volatility index is back below where it was on Thursday, suggesting investors in US stocks no longer feel they need downside protection.
So why is one asset class suggesting risk is now back off but others imply risk is still very much on?
Well firstly, risk must still be elevated because we still don’t know what’s going to transpire vis a vis Brexit, so uncertainty still prevails. Opinions on that matter range from perfect storm to storm in a tea cup. Secondly, central banks across the globe have vowed to provide whatever liquidity injections are required to prevent calamity. It is expected the Bank of England will be forced to ease, it is expected the Bank of Japan will have no choice but to ease, it is expected Mario Draghi’s “whatever it takes” may need further beefing up, and it is now expected the Fed will remain on the sidelines for months, if not years.
If we are to enter a new round of global central bank stimulus, then all of gold, bonds and stocks are places to be. For stocks, central bank support is the “free put”, or safety net. And when yields are even lower now than they were, where else can anyone make a return than in the stock market, particularly the dividend-paying stock market?
There is no alternative. TINA.
And as an aside, one presumes a fresh round of global easing only strengthens the case for another RBA rate cut. Or two.
On the subject of the Fed, last night’s US personal income & spending data for May showed a 0.4% rise in consumption on only a 0.2% rise in income. This is a positive for the US GDP, which is currently forecast to have risen 3% in the June quarter following March’s 1.1%. But the personal consumption & expenditure (PCE) measure of inflation rose 0.2% to take core PCE inflation to 0.9% over 12 months, down from 1.1% in April.
In other words, the US economy may have a healthier quarter but there is no incentive in the Fed’s preferred measure of inflation to raise rates.
Commodities
The drawdown on weekly US crude inventories was indeed substantial last week, while so far the rig count has not risen much at all. This is helping to support oil, West Texas is up US$1.43 or 3% to US$49.54/bbl.
The US dollar index continued to pull back last night, down 0.2% to 95.71. Base metal prices again moved up, slightly, except for lead which jumped 2%.
Iron ore was unchanged at US$53.40/t.
The Aussie is following up commodity prices, rising 1.3% to US$0.7447.
Today
The SPI Overnight closed up 73 points or 1.4%.
Australian private sector credit numbers are due today.
The final revision of the UK’s March quarter GDP is due tonight, over which, presumably, the Poms will ultimately reminisce.
Rudi will make his weekly appearance on Sky Business today, 12.30-2.30pm, and again between 7-8pm on Switzer TV, same channel.
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