Daily Market Reports | Oct 05 2017
By Greg Peel
The Dow closed up 19 points or 0.1% while the S&P gained 0.1% to 2537 and the Nasdaq managed 0.04%.
Debt Drama?
The IMF released a report yesterday warning Australia of the problem of growing household debt. It is not often the market pays much attention to the IMF, particularly its forecasts as they are often well behind the curve, but in this instance it appears the market may have taken notice.
Australia’s household debt has been growing steadily since 2008 as interest rates have fallen, with the cash rate for some time now at an historically low 1.5%. Rising debt is positive for the economy in the near term because it reflects spending, but in three to five years, the IMF warns, it becomes a drag as households cut back on spending to service that debt. If rates then rise, the burden of debt service becomes greater, and a crisis is potentially precipitated.
Australia is the only country in the Asian region to have a household debt ratio of in excess of 100% of GDP. Canada is in the same boat, but ratios in the US and UK have decreased since 2008.
Yesterday morning the futures suggested the ASX200 would be up 15 points. We began last week around 5700 and every day since then the futures have suggested a daily gain in the teens. We hit 5650 on Wednesday last week. Aside from last Monday’s holiday blip, the futures have been wrong every time. We are now back at 5650 again.
Yesterday was the first session over the period since last Monday week that every sector has gone the same way – in this case down. Utilities stood out with a -2.3% fall. Energy fell -1.1% on the lower oil price. Consumer discretionary lost -0.9%, probably because households are the consumers. Every other sector fell a uniform -0.6% or so.
The selling was thus market-wide which, given Wall Street yet again pushed to new highs and there were no data releases of note, other than the local services PMI which ticked up slightly, likely points the finger at that IMF report.
Volume was nevertheless low. It is still school holidays in some states, including NSW, but otherwise one gets the feeling there’s not a lot of interest in this market at present. We are back at 5650, which for now is the support level. Any meaningful breach would have to suggest, maybe this time, the move back to 5500 so often touted by chartists could be on.
Guess what? The futures are up 19 this morning. Maybe we could have more faith in a rally if they were down.
Muted
Secretary of State Rex Tillerson is not about to resign, he ensured last night, despite reports suggesting he was contemplating such. He’s a Trump man all the way.
Polly-talk of course, but Wall Street breathed a sigh of relief that the respected Tillerson – seen as the adult in the room when it comes to difficult diplomatic issues such as North Korea – will not the be the latest in a long line of Trump casualties. We hope.
Meanwhile the child in the room made an off the cuff statement in a doorstop that the debt of Puerto Rico would have to be wiped out by the government, so bad luck to the bondholders. This came as a bit of the shock to said bondholders, who immediately started bailing and sent the value of Puerto Rico’s debt to an all-time low.
As usual, the Trump minders had to go into reverse overdrive to calm the situation. For one, the president does not individually have the power to “wipe” the debt, rather there is a board that makes such decisions. But he does have the power to replace the board.
Prior to Maria, Trump was whinging about Puerto Rico’s level of debt – US$7bn to be precise, for an island of 3.7m people. When it comes to Trump, it’s hard to keep up.
In economic news, the US services PMI jumped to 59.8 in September from 55.3 in August, when 55.5 was expected. Both the US manufacturing and services industries are going gangbusters.
Last night’s ADP report suggested 135,000 private sector jobs were added in the US last month. That’s below 150,000 expectations, and low in the context of recent months, but economists now expect noise in the numbers for the next couple of months due to the hurricanes. Tomorrow night’s non-farm payrolls result will be difficult to interpret.
The three major indices have again posted new records. In a lacklustre session, the Dow was up around 40 before closing up around 20. The Russell finally ticked down last night and the Dow Transports has not been hitting new highs along with the others.
Wall Street is looking toppy. But it’s been looking toppy all year.
Commodities
West Texas crude has slipped under 50, trading down -US50c at US$49.87/bbl. Once again it has been noted that 50 is a line in the sand that sparks a boost in production.
Base metal prices were again mixed in London, with aluminium and zinc rising 1.5% — zinc is at a ten year high – and lead falling -1.5%.
Iron ore remains unchanged at US$61.50/t.
The US dollar index fell -0.1% and gold is slightly higher at US$1274.50/oz.
The Aussie is up 0.3% at US$0.7862.
Today
The SPI Overnight closed up 19 points. As to why is anyone’s guess. Perhaps someone’s algorithm is stuck in a loop. Or maybe 5650 support is the answer. But let’s face it, the ASX200 could finish anywhere.
It may come down to today’s local retail sales and trade data.
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The Australian share market over the past thirty days…
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