Daily Market Reports | Oct 06 2017
This story features PRL GLOBAL LIMITED.
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By Greg Peel
The Dow closed up 113 points or 0.5% while the S&P gained 0.6% to 2552 and the Nasdaq rose 0.8%.
Retail Rocked
There were dropped jaws among retailers and red faces among economists yesterday when Australia’s retail sales data for August were released. Sales plunged -0.6% when consensus forecasts assumed a 0.3% rise.
Sales growth had been weak as we moved into 2017 but suddenly May saw a 1.0% increase. Since then we’ve seen monthly moves of +0.6%, +0.2%, -0.2% and now -0.6%. The trend does not look encouraging. The numbers are at odds with a surprisingly strong trend in jobs growth over the period.
But as is well known, jobs growth is not translating into wages growth. Meanwhile, household debt has grown to a level that has the IMF sounding the warning bells and the interest rate debate is centred not on whether rates might go up, but when. It’s not that hard to see why households have decided to pull back on their spending.
It’s just as well Australia is still good at selling rocks to others, as domestic consumption is clearly becoming a drag. Australia’s trade surplus rose to $989m in August from $808m in July when economists had forecast $850m. Exports rose 0.5% and imports were flat.
Non-rural exports – that’d be your rocks – are up 25% year on year. Rural exports are up 22% and goods & services exports up 20%. The better than expected surplus number for August has been put down to higher commodity prices and stronger volumes.
How does this all translate into the primary indicator of economic performance? The stock market closed flat yesterday.
The consumer discretionary sector fell only -0.2% on the sales numbers so it was left to the telcos, one in particular, to balance out gains elsewhere with a -1.0% fall. The banks lost -0.1%. Other than flat energy, all other sectors posted gains, with materials most notable on 0.5%.
The futures suggested up 19 yesterday morning and indeed the ASX200 jumped 20 points from the bell. But as is now the trend, that gain soon gave way. In another choppy, low volume session, the index found itself back at the 5650 support level by the closing bell.
But wait! This morning the futures are suggesting up 36 points. Given zero correlation between the futures and index end-result these past two weeks, it would be foolish to book 36 points in for 4pm. But for the first time in that period, the futures have closed on a number that is not a gain of 14-19 points.
This time it’s different, he says with an ironic smile.
Hurdle Cleared
Congress last night passed the 2018 US budget bill. This excited Wall Street for two reasons. Firstly, despite a Republican majority in all three houses – upper, lower and White – passage of anything through this Congress is front page news. But more importantly, tax reform could not even be contemplated until the budget bill had passed.
The Dow was up around 40 points ahead of the budget news. In a heartbeat in was up a hundred.
The fact Wall Street has already posted new record highs with monotonous regularity this year is clearly not a deterrent. The S&P500 has now risen eight sessions in a row, with the last six of those all representing new highs. The last such run was in 1997.
Underpinning this particular gain was a quick snap-back in the oil price, ensuring the energy sector was back to join sector leaders.
Tropical Storm Nate is expected to develop into a hurricane by the weekend. Mercifully this time the islands of the Caribbean are not in the cyclone’s path, rather Nate is headed towards the centre of the Gulf. As a result, oil companies are currently evacuating rig workers.
As Nate brews, the Saudi King is on his way to Moscow in an historical first, supposedly to discuss a further extension of the OPEC/non-OPEC production cuts. Putin is reportedly amenable to an extension out to end-2018.
But does it make any difference? Last week’s US data, released last night, showed production at its highest level since July 2015. On Wednesday night the WTI price slipped below 50, and typically whenever that happens we see a drop back towards the bottom of the range at 45, before rigs are shut down again and we come back to 50. It’s all a bit of a yo-yo. But as of this morning, WTI is back over 50 once more.
By the end of next week, the first of the US third quarter earnings results will hit the wires. There will follow a month of what will need to be another strong earnings season if Wall Street’s relentless rally is to find any substance.
Commodities
West Texas crude is up US86c at US$50.73/bbl.
Base metal trading in London was largely unremarkable with one exception. Copper jumped 2.7% on news of an earthquake in the copper producing region of Chile. It appears, by virtue of a glance at a map, that the impacted mines are some distance away from Escondida, where Australia’s big miners have their operations.
Iron ore fell -US30c to US$61.20/t. The Chinese are back next week.
The US dollar index has shot up 0.5% to 93.95, boosted by the passage of the budget but also as an offset against the pound, which has fallen as the world winces at the painful, slow implosion of Theresa May.
Gold is thus down -US$6.30 at US$1268.20/oz.
On the weak retail sales result, ignoring the solid trade numbers, and on the stronger greenback, the Aussie is down -0.9% at US$0.77.93.
Today
The SPI Overnight closed up 36 points or 0.6%.
The non-farm payrolls data for September are due in the US tonight, but commentators are noting it will be hard to get any sort of meaningful read out of the numbers given the hurricane impact could, for example, turn an expected 150,000 into only 75,000.
Locally we’ll see the September construction PMI.
Programmed Maintenance ((PRG)) will hold its AGM.
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The Australian share market over the past thirty days…
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