Daily Market Reports | May 17 2017
By Greg Peel
The Dow closed down -2 points while the S&P lost -2 points to 2400 and the Nasdaq rose 0.3%.
Stablised
The risk of the ASX200 plunging through 5800 abated yesterday thanks to a new high for the S&P500 overnight, itself largely due to a rally in the oil price. The local energy sector was nevertheless one of the lesser performers in the local market with a 0.2% gain, but if we correct for NAB and Macquarie going ex-dividend, all sectors finished in the green yesterday.
Industrials topped the board with a 1.1% rise while utilities lagged with 0.1%, but otherwise buying was market-wide rather than obviously sector-specific.
The impact of those two dividends can be seen in the fact the ASX200 closed up only 12 points but the SPI futures, which do not adjust for dividends, rose over 30 points in the session.
“The Board continued to judge that developments in the labour and housing markets warranted careful monitoring,” noted the minutes of the May RBA meeting yesterday, and that monitoring largely explains why “maintaining the current stance of accommodative monetary policy” was the way to go.
The RBA does not appear as concerned as the market over tepid wage growth, brought about by the increasing balance of part-time jobs: “Data on the labour market had been somewhat mixed, but forward-looking indicators continued to suggest that employment growth would maintain its recent pace and spare capacity in the labour market would decline gradually”.
With regard to APRA’s tightening of the mortgage market and the banks’ response thereto, “it would take some time to assess the full effects of recent increases in mortgage rates and the additional supervisory focus”.
Thus the cash rate is not likely to change anytime soon. We do however have the March quarter wage price index due out today and the April jobs numbers tomorrow.
From Russia With Disinterest
Gold rose six dollars last night but not because all the brouhaha in Washington over Trump trading secrets with the enemy, but because the US dollar index fell -0.7%. The dollar fell not because of this heightened geopolitical risk, but because the euro rose on the back of strong economic data across The Pond.
The eurozone’s trade surplus reached the highest level in March ever recorded in the history of the EU.
This achievement didn’t do a helluva lot for the eurozone’s March quarter GDP, which was confirmed last night at only 0.5% growth. Still, we’re a long way from the scourge of the PIIGS and with the French election run and won, happy days are here again.
But back to Trump. It appears that as is the case with North Korean missile tests, Wall Street views the drama with bemusement at arm’s length, rather than with trader panic. More important are earnings results and economic data, pending any major fiscal policy announcements.
To that end, US industrial production grew by the fastest pace in three years in March, with the 1.0% result beating forecasts of 0.5%. Manufacturing is leading the charge, which should have one Mr Trump happy, except that the fact the US dollar has now fallen back to election-time levels is one reason manufacturers are enjoying more accommodating conditions.
Mr Trump will not, however, be happy with the news Ford intends to cut -10% of its global workforce, half of which is based in the US. The cuts are expected to be mostly among salaried, middle management employees, although as to whether this will extend to wage earners on the factory floor is unclear.
The oil price slipped back a bit last night as the market considered that just because the Saudis and Russia have agreed to extend production cuts by nine months it doesn’t ensure all of OPEC will toe the line. On the other hand, the Nasdaq yet again hit another all-time high.
The dislocation between the outperforming Nasdaq, driven by the ever rising FANG stocks, and the rest of the market, which is largely stalled, is beginning to worry Wall Street. One of the problems is that this singular outperformance inevitably feeds on itself.
Index-tracking funds, which have returned to popularity, must keep pace with market caps. Thus if the share prices of Facebook, Amazon et al rise in isolation, their cap weightings rise and fund managers must buy more. When they buy, they push the price up, which means market caps rise…and so on.
When does the merry-go-round ride end?
Commodities
Gold is up US$6.30 at US$1236.70/oz, with the US dollar index down -0.7% at 98.20.
West Texas crude is down -US58c at US$48.23/bbl.
Aluminium managed a gain on the LME last night but copper fell slightly, zinc dropped -1%, nickel -1.5% and lead -2.5% as traders reacted to yesterday’s slightly disappointing Chinese data.
Iron ore rose US10c to US$60.40/t.
The Aussie is 0.1% higher at US$0.7424.
Today
The SPI Overnight closed up one point.
The aforementioned wage price index will be closely watched in Australia today, while the monthly Westpac consumer confidence survey is also due.
DuluxGroup ((DLX)) will report earnings.
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