Daily Market Reports | May 31 2017
By Greg Peel
The Dow closed down -50 points or -0.2% while the S&P fell -0.1% to 2412 and the Nasdaq lost -0.1%.
APRA Chimes In
The ASX200 opened to the downside yesterday but quickly recovered in the first half hour. The reprieve was short-lived nonetheless, and down we went again. The number to watch, chartists had suggested, was 5680. A breach of that level would signal more significant downside.
At 11.10am the index hit 5680 and duly bounced. While there would have been an element of buying at that support level for technical reasons, there were other outside forces at play.
Economists had expected a rebound in building approvals in April from a weak March, and were right. Indeed, residential approvals rose 4.4% when consensus had 3% pencilled in. Within that number, 8.9% came from apartment approvals and only 0.5% from houses.
Apartment bubble still bubbling? Not quite. Year on year, apartment approvals are down -26%. House approvals are down -7.5%, adding to a -17.2% total residential decline. The take-away is that the residential building boom is indeed cooling, but it is trending down in a choppy fashion rather than falling off a cliff. As the housing market cools, the RBA is under less pressure to raise its cash rate, in the face of weakness elsewhere, in order to rein in housing further.
This was a positive. But the more substantial positive yesterday morning was the suggestion by APRA that the government’s new bank levy will not financially destabilise the banks. They will remain “quite profitable” despite the tax.
There was a sigh of relief from bank shareholders, given all and sundry are still waiting for the regulator to define what an “unquestionably strong” level of capital might be. There was a fear that whatever that level was, it would now be even harder to achieve after the banks had forked out the levy to the government, implying that perhaps dividend cuts or capital raisings may be necessary.
We still don’t know for sure that they won’t be, but at least APRA does not see the levy as making any real difference. The banks led the market back up into the green yesterday, closing up 0.9%.
The big miners also found some support yesterday despite most of the world’s commodity markets being either closed or unmoved overnight. Aside from a flat session for utilities, materials was the only other sector to post a gain by the close yesterday. Every other sector fell by roughly -0.5%. But the index closed up 0.2%.
Just goes to show how concentrated the Australian index is.
Still on Holiday
Amazon hit US$1000 per share last night, briefly. If you blinked you missed it, and there weren’t many traders around to see it anyway. With Wall Street continuing to track sideways, there was clearly no anxious rush back from the seaside after the long weekend. Volumes were low.
There were further gains posted among the Big Tech names nevertheless, including Google Microsoft and everyone’s favourite enigma, Tesla, but the Nasdaq still fell slightly on the session.
In the wider market, a lot of the weakness came down to the oil price which, having snuck back over $50/bbl on Friday night, fell back again. Traders are still blaming OPEC’s failure to not just extend production cuts but to increase them, and if it were not for expectations of weekly data showing another decline in US crude inventories, the fall could have been worse than the -1% posted.
Otherwise, it was largely back to sideways for Wall Street. Perhaps June will bring renewed attention. One thing that is apparent, however, is that Wall Street does not much care about what’s going on in the White House, or what’s landing periodically in the Sea of Japan.
The whole Russian debacle just gets curiouser and curiouser, and North Korea is setting off missiles like it’s cracker night. But all that matters for Wall Street is news on tax reform. Until that is evident, Wall Street is struggling to meaningfully go either up or down.
In the day’s data news, US personal income and spending each rose 0.4% in April, as forecast. The decent gain in spending offered some relief from fears the US consumer had gone into hiding this year, but then the Conference Board’s monthly index of consumer confidence fell for a second straight month.
The personal consumption & expenditure (PCE) measure of inflation rose 0.2% but year on year is only tracking at 1.7% headline, and 1.5% core. The CPI may have returned to the Fed’s target 2% growth but the Fed prefers the PCE, which remains well below. Yet the numbers did not prompt the market to reconsider expectation of a June rate hike.
Maybe later rate hikes might be more questionable, nonetheless. The US ten-year bond yield fell -3 basis points to 2.22% and is now tracking back to the 2017 low of 2.17%, while the US dollar index is also lower.
Commodities
The dollar index is lower by -0.2% at 97.28. Yet gold is down -US$4.00 at US$1262.80/oz.
West Texas crude is down -US51c at US$49.65/bbl.
Aluminium fell -1% in London as metals traders returned from their weekend break, or from their bed on the floor at Heathrow if they were flying British Airways. All other base metals were quiet.
With the Chinese still on holiday yesterday, iron ore rose US10c to US$57.90/t. They’re back today.
The Aussie is 0.4% higher at US$0.7465.
Today
The SPI Overnight closed down -4 points.
China will release its official May manufacturing and services PMIs today.
Locally, yesterday’s building approvals numbers will be followed up by private sector credit today.
Rudi will host Your Money, Your Call tonight on Sky Business, 8-9.30pm.
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