Daily Market Reports | Jul 04 2016
By Greg Peel
Playing to Script
Friday on Bridge Street played out as expected, despite it being the first day of the new year. The market opened higher in line with global momentum post-Brexit, traded sideways for a while and then at 2pm, the square-up bell was rung.
The index came most of the way back as traders took profits on a very solid week, ahead of a weekend, a long weekend in the US, and the local election, just in case something disturbing like a hung parliament should transpire.
On that note, we are reminded stock markets are usually ambivalent with regard which party is in power, but do not like uncertainty. And that’s exactly what we have this morning.
We also, of course, have a more elevated case of uncertainty over in the UK/EU. But whatever happens now, markets are convinced another wave of central bank easing is afoot. Central bank easing helps support stock markets but also directly supports commodity markets, and as such we saw some big moves up in commodity prices through Friday.
It it thus no surprise the materials sector was the stand-out performer locally on Friday with a 2% gain when every other sector closed as good as flat.
Investors were not fazed by the latest data out of China, which were far from encouraging. Beijing’s official manufacturing PMI fell to 50.0 in June from 50.1 in May, right on the cusp between expansion and contraction. Caixin’s independent equivalent showed a fall to 48.6 from 49.2 – the fastest decline in four months and the sixteenth consecutive month of contraction.
We can perhaps take some heart in the fact Beijing is trying to steer China away from reliance on manufacturing and export, and note the official service sector PMI rose to 53.7 from 53.1, although that doesn’t much help the sellers of rocks. What will help is government stimulus in the form of infrastructure investment, which is expected to be beefed up as China looks to its own favoured means of easing, beyond renminbi devaluations.
Who’d have thought?
Who’d have thought a week ago that Wall Street would post its best week since 2014? Both the Dow and S&P500 gained 3.2%. Friday’s trading nevertheless played to script as well, given both the week’s rally and the long weekend.
Afternoon selling wiped out initial gains, such that the Dow closed up 19 points or 0.1%, the S&P gained 0.2% to 2012 and the Nasdaq added 0.4%. Interestingly, the indices were back at the flat line just after 3pm before a late burst ensured the S&P closed above the psychological 2100 mark.
The US manufacturing PMI posted a much more encouraging rise to 53.2 from 51.2, beating expectations.
Traders have always been keen not to take positions home over weekends but weekends have become even more scary in this post-GFC world. Beijing likes to pull little tricks on a weekend and as we learned from the whole Grexit saga, weekends can often bring meetings between relevant parties that have particular ramifications the following week.
Nothing happened this weekend beyond the no-result Australian election, but the fact gold was up US$20.20 to US$1341.90/oz and the US ten-year bond yield fell back 3 basis points to 1.46% suggests investors were happy to top up their safe haven positions as a hedge against the “no alternative” equity rally.
Commodities
The UK has signalled monetary easing ahead, the EU is ready to do whatever it takes, Japan will probably be forced to do something and Beijing has already slipped in another renminbi devaluation. And on that basis, many do not see the Fed raising anytime soon. Put it all together and global stimulus is supportive of commodity prices.
The US dollar index fell a mere 0.3% to 95.64 on Friday but in London, aluminium rose 0.7%, copper 1.5%, zinc 2.5%, lead 3.5% and nickel 6%.
West Texas crude rose US90c to US$49.30/bbl.
Only iron ore bucked the trend, falling US20c to US$54.00/t.
The Aussie dollar was up 0.8% on Saturday morning at US$0.7499 as the sausages sizzled and the vanilla slices flew out the door, but in the cold hard light of Monday morning, has slipped to US$0.7465.
It was also Saturday morning when the SPI Overnight closed up 32 points or 0.6%.
The Week Ahead
Wall Street is closed tonight but there follows a big week for US releases, including the minutes of the June Fed meeting on Wednesday and the non-farm payrolls report for June on Friday.
Tuesday it’s the services PMI and factory orders, Wednesday the trade balance, and Thursday chain store sales and the ADP private sector jobs report.
In a rudderless, which unfortunately is not as positive as Rudd-less, Australia we’ll see ANZ job ads, the Melbourne Institute inflation gauge and building approvals today and retail sales and the services PMI tomorrow ahead of the RBA meeting. No rate change is expected, but the market will be interested to hear the board’s take on Brexit.
Thursday it’s the construction PMI.
Tuesday is services PMI day across the globe including Caixin’s take on China.
There is very little in the way of local corporate events or releases this first week on the new year but as of next week we start to see the first quarterly reports.
Rudi will be traveling to and presenting in Melbourne this week. Hence no live appearances from the Sky News studios in Macquarie Park.
For further global economic release dates and local company events please refer to the FNArena Calendar.
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