Thanks Endless, Gttrain, Trees and to all regulars.
An apology in advance if this is too long, otherwise I’m happy to cut down as I’ve taken a bit of a different approach for the afternoon wrap today. I hope you all enjoy the read.
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Australian stocks have shrugged off a rise in the unemployment rate, holding onto gains made after the US Federal Reserve indicated it would keep stimulus measures in place for the foreseeable future.
At 12.10pm AEST on Thursday the benchmark S&P/ASX200 index was up 51.7 points, or 1.05 per cent, at 4953.1. The broader All Ordinaries index had gained 49.1 points, or 1.01 per cent, at 4934.5.
The market moved upwards early on Thursday after Fed chairman Ben Bernanke said the central bank would need to continue supporting the US economy.
‘‘Both the employment side and the inflation side are saying that we need to be more accommodating,’’ he said, answering questions after a speech. CommSec analyst Juliette Saly said the market welcomed the chairman’s assurances that the Fed would continue to stimulate the world’s largest economy.
‘‘Essentially what we’re seeing is a bit of a buoyancy effect,’’ she told AAP.Official job figures out on Thursday also showed the unemployment rate had increased to 5.7 per cent in June, from 5.6 per cent in May.
‘‘They’re pretty much bang on in line with what we were expecting,’’ Ms Saly said.
‘‘It’s in line with what we’re hearing from employees as well, with what they’re doing to really try to cut costs rather than cut jobs.’’
Strong commodity prices have also helped the overall market.
Resources stocks opened strongly on Thursday morning, with BHP Billiton up 67.5 cents, or 2.12 per cent, to $32.50, while Rio Tinto was $1.08 cents at higher $53.47.
Gold miner Newcrest gained $1.03, or 10 per cent to $10.98.
The big four banks also continued to do well. Westpac shares had lifted 38 cents to $29.42, NAB had gained 35 cents to $29.80, ANZ rose 25 cents to $28.89 while the Commonwealth rose 73 cents to $71.08.
On the ASX 24, the September share price index futures contract was 49 points higher at 4917 with 4919 contracts traded.
Offshore overnight
United States
US stocks ended mixed after the minutes to the Federal Reserve’s last policy meeting confirmed it is heading toward reeling in its stimulus program in the coming months.
Key numbers:
•Dow Jones Industrial Average lost 0.06% to 15,291.89 •S&P 500 added 0.02% to 1,652.64 •Nasdaq Composite added 0.47% to 3,520.76
Europe
European stock markets fell while the euro recovered against the US dollar, as traders’ focus fell on Italy after a credit rating downgrade. Weak Chinese trade data added to concerns about economic growth, traders said. They were waiting for a speech by US Federal Reserve chief Ben Bernanke and the release of minutes from the bank’s last meeting, for an idea about the future of the Fed’s stimulus program.
Key numbers:
•London’s FTSE 100 lost 0.12% to 6,504.96 •Frankfurt’s DAX 30 lost 0.11% to 8048.76 •In Paris the CAC 40 lost 0.08% to 3,840.53
Asia
Asian markets ended mixed, with Japanese shares hit by a pick-up in the yen, while Hong Kong and Shanghai saw healthy buying despite worse-than-expected trade data out of China.
Key numbers:
•Japan's Nikkei lost 0.39% to 14,416.60 •China's Shanghai composite added 2.17% to 2,008.13 •Hong Kong's Hang Seng added 1.07% to 20,904.56
Commodities
Energy
New York oil prices soared after US crude stockpiles tumbled more than expected last week, pointing to a pickup in demand in the world’s biggest economy.
Key numbers:
•New York’s main contract, West Texas Intermediate for delivery in August, closed at $US106.52 a barrel after leaping $US2.99, or nearly 3.0 per cent, from Tuesday’s closing level. •Brent North Sea crude for August added 70 US cents, settling at $US108.51 in London trade.
Precious metals
Gold futures rose in electronic trading after the US Federal Reserve’s policy meeting minutes showed about half the Fed officials believe the central bank should end its $85 billion-a-month bond-buying program by the end of this year.
•Gold for August delivery, the most active contract, rose to $US1,258.30 after the minutes were released. The contract was recently up $US11.10, or 0.9 per cent, at $US1,257 an ounce on the Comex division of the New York Mercantile Exchange. •Gold for August delivery, the most actively traded contract, settled up $US1.50, or 0.1 per cent, to settle at $US 1,247.40 a troy ounce.
Base metals
Copper settled higher on the London Metal Exchange, boosted by strong import data from China, which accounts for 40 per cent of global demand for the red metal.
•At the PM kerb close, LME three-month copper was up 1.4 per cent at $US6,825 a metric ton. •Nickel rose the most, ending the session 2.4 per cent higher at $US13,650 a ton. •Aluminum, meanwhile, ended the session $US1,817 a ton, up 1.5 per cent on the day.
Today’s Financial Calendar
•(AU) - Unemployment, Jun; - Australia’s unemployment rate rises to 5.7% •(JP) - BoJ policy meeting •(NZ) - Business PMI, Jun •(US) - Chain store sales, Jun •(US) - Treasury budget, May •(CMW) - EGM •(CSR) - AGM •(FGE) - AGM
How we fared yesterday
Australian shares rose, pulling back from a stronger start after disappointing Chinese trade data raised fresh concerns about slowing growth in the world's second-biggest economy. The index ended in positive territory as investors raised the odds for a rate cut by the
At the close on Wednesday, the benchmark S&P/ASX200 index was 19.7 points, or 0.4 per cent, higher at 4,901.4. The broader All Ordinaries index was up 18.9 points, or 0.39 per cent, at 4,885.4.
THE OVERNIGHT REPORT:
The Dow closed down 8 points, while the S&P was flat at 1652 and the Nasdaq rose 0.5%.
Gee those Chinese data releases are a barrel of laughs at the moment aren’t they? Talk about killing the mood at a party. The ASX 200 was up in excess of 1% yesterday despite Chinese trade data being due at midday, and despite expectations they wouldn’t look that flash. But no one was quite prepared for just how bad they were.
Exports fell by 3.1% (year on year) in June compared to expectations of a 3.7% gain. Imports fell by 0.7% compared to expectations of a 6.0% gain. By region, exports to the US fell 5.4%, to the EU 8.3%, and to Japan 5.1%. The balance came from exports to the ASEAN bloc, up 10.2%. Not counting Australia, the Asia ex-Japan market appears to becoming an increasingly closed shop.
The data release was enough to ensure the ASX 200 closed up only 0.4%. Didn’t seem to bother the Chinese nonetheless, with the Shanghai index rising 2%.
Not helping the mood was a headline-grabbing update from the IMF economists – the ones that believe one day man will walk on the moon. The IMF downgraded its Chinese GDP growth forecast to 7.8% from 8.1% in 2012 and the Australian media had apoplexy. No, that is not a typo; the IMF may have published the forecasts as “2013” but the economists live in a parallel universe that runs a good year behind. They boldly predicted a GFC in 2009. Yesterday’s downgrade to 7.8% is about on the money for 2012 but as for 2013, well most non-IMF economists are already suggesting 7.5% or lower. If this IMF forecast really is for 2013 then it would be considered an UPGRADE to consensus.
Write this down: Always ignore the IMF. And the World Bank’s no better.
Moving to Wall Street, there was much anticipation but little movement in indices last night as traders awaited the release of the Fed minutes at 2pm. There was a brief spike of volatility on the release until the market realised that there were no further clues on tapering therein. Apparently around half the FOMC members were keen to start tapering, but timing was not made clear. Wall Street thus closed flat and waited for the speech and Q&A Bernanke was set to give after the closing bell.
In essence, Bernanke threw a bucket of cold water over September first-tapering expectations. Not directly but implicitly. He suggested that parts of the US economy were looking healthy but elsewhere risks remain, and crucially he suggested the current 7.5% unemployment rate was misleading when one takes the participation rate and the long term unemployment rate (around 14%) into account. Inflation is behaving itself at 1%, and a highly accommodative monetary policy stance is still required at this point. The ultimate target for a rate rise of 6.5% unemployment is only a threshold, the chairman emphasised, not a trigger.
The US dollar subsequently tanked, down over 1% on its index. The Dow futures are up 118 points and the more relevant S&P futures are up around 0.92%. Gold is higher at US$1280.70.
The commodity grabbing a lot of attention at the moment is oil. Two factors are at work here. Firstly, tensions in Egypt and concerns over Suez Canal access have floated all boats, lifting Brent and West Texas crudes equally. But at the same time, oil is now flowing out of Cushing like a tsunami now the pipeline from the Gulf Coast refinery region has been reversed. The unblocking of this supply bottleneck means storage at Cushing is no longer at a premium, hence as the storage carry-cost falls, the price of the crude itself rises. Confused? Just look at the prices. Last night Brent fell slightly to US$107.98/bbl but West Texas jumped US$2.55 to US$106.08/bbl. Having traded as high as US$26 in the past two years, the Brent-WTI spread is now only US$1.90. Some analysts are expecting a full reversal.
And a check of the Aussie. At 1200 AEST on Thursday, the local unit was buying 92.38 US cents, up from 91.96 cents on Wednesday.
Presumably Wall Street can relax now, and rather than buy stocks on an improving economy they can buy stocks on stronger for longer QE. Meanwhile, the Australian jobs numbers are out today with the unemployment rate rising to 5.7% and the Bank of Japan will hold a policy meeting.
A quick chart indicating the Australian materials sector which remains under pressure:
I hope we are all having positive trades, enjoy the rest of the day!
