Market wrap: Futures traders expect a flat start for local equities as a strengthening US dollar pressures commodity prices.
The SPI futures index closed 3 points weaker on the weekend despite gains for Wall Street on Friday after solid retail sales and consumer sentiment boosted hopes for a bumper shopping season for retailers. The Dow Jones Industrial Average of blue chips rallied 0.63%, the broader S&P 500 gained 0.37% and the tech-heavy Nasdaq finished little changed at -0.03%.
Retail sales in the US rose 1.3% last month, better than the 0.7% increase tipped by economists. Further evidence of recovery came with a jump in consumer sentiment to 73.4 in December from 67.4 in November, its highest level since September.
The news strengthened the case for interest rate rises in the future and helped drive the US dollar to a two-month high. The dollar index, which measures the greenback against a basket of major currencies, rallied 0.66% for a second weekly gain, and prompted selling in alternative investments such as gold, silver and oil.
US resource and technology sectors softened. The index of precious metals miners lost 2.1% and oilers closed marginally lower. The airline sector surged to its highest level since early 2008, up 6.33% as the falling oil price bolstered profit outlooks. Financial stocks, REITs, transport stocks, industrials and insurers edged higher.
European markets continued to bounce off last week’s lows but couldn’t hold early advances after the shine came off commodity prices. Britain’s FTSE rose 0.33%, Germany’s DAX 0.83% and France’s CAC 0.14%.
Gold futures fell to a one-month low and their second weekly loss as gains in the US dollar eroded their investment appeal. The spot price closed at $1,114.40 an ounce, around 1% lower. Crude oil futures fell for an eighth straight session, their worst losing streak in six years. Crude for January delivery ended 0.9% lower at $69.87 a barrel.
Base metals continued to resist selling pressure elsewhere in the commodities complex after Friday’s robust Chinese economic data pointed to strengthening demand. Chinese industrial output last month surged at its fastest pace since 2007 and imports of copper products jumped 10.3%. In London, copper rallied 2.94%, aluminium 2.81%, lead 2.15%, nickel 2.14% and zinc 2.03%.
TRADING THEMES THIS WEEK
US DOLLAR: Whatever your views on the true worth of the greenback, it’s bouncing as improvements in the economic outlook in the States bring interest rate rises onto the distant horizon. Since bottoming in late November, the dollar index seems to have broken its downtrend and that has implications for our resources-heavy share market. Some international investors trade Australian indexes as a proxy for commodity prices and the tide seems to have turned for gold, silver and oil, in the short term at least. Base metal prices remain robust despite the apparent contradiction of rising prices and rising stockpiles – one or the other will eventually have to give.
CHRISTMAS DOLDRUMS: We’re not quite there yet but falling volumes and volatility suggest the seasonal lull has come early this year. These are tricky conditions for traders to make money and there’s not much to be done but trim your trading until the environment improves in January while seizing the few opportunities that arise. If you’re stuck in front of a computer all day, it’s a good time to catch up with reading. I’m refreshing my memory with ‘The Mining Valuation Handbook’ and ‘The Insider’s Guide to Investing in Australian Mining and Resources Stocks’. Both highly recommended.
ECONOMIC NEWS: This is the last busy week on the local calendar before the wind-down into Christmas. October lending finance figures are due today at 11.30 am. Later in the week come housing starts, GDP, the RBA Bulletin and minutes from the last Board meeting. The US is quiet tonight and on Friday but busy through the middle of the week with PPI, CPI, manufacturing, industrial production, an interest rate decision, leading indicators and jobless claims.
