Morning traders. Thanks Trees and after-market regulars.
Market wrap:
A heavy fall in market heavyweight BHP following earnings and demerger news looks set to cap the Australian share market despite an overnight rally on Wall Street.
The September SPI 200 futures contract fell eight points or 0.15% to 5575 as shares in the "Big Australian" slumped 3.75% in US trade overnight after the company announced a 23% increase in full-year profits and detailed plans to spin off assets into a new ASX-listed company. Analysts attributed some of the weakness to the company's failure to announce a widely-anticipated share buyback scheme.
US stocks closed near record levels following a round of market-friendly economic data and solid earnings news. The S&P 500 advanced ten points or 0.52% to 1,982, just 0.3% below an all-time closing high. The Nasdaq rallied 20 points or 0.44% to a new 14-year high as Apple closed at a post-split record. The Dow put on 81 points or 0.48%.
“The market has come back strong this week in a repeat of what we’ve seen throughout the bull run, the ability to motor through geopolitical events,” Tim Rudderow, president and chief investment officer at Mount Lucas Management in the US, told Bloomberg. “Today’s numbers were solid but not spectacular, and that’s perfect in an environment where really robust economic growth would not be positive.”
Benign inflation data soothed concerns that an improving economy and years of Federal Reserve liquidity might drive up the cost of living and force the central bank to raise interest rates early next year. The consumer price index rose a seasonally-adjusted 0.1% last month but the annual rate of inflation eased to 2% and remained below the Fed's target. Read more here.
Housing starts jumped to their highest level in eight months during July, another sign that the housing market is regaining traction following a downturn. Construction on new increased by 15.7% and starts were revised up for June. Permits for new construction rose 8.1%.
“With tame inflation data and the housing market benefiting from the drop in mortgage rates, it’s painting a pretty sanguine picture,” Russ Koesterich, chief investment strategist at BlackRock, told Bloomberg. “Housing starts were encouraging, and the housing market is one area the Fed has been concerned about being somewhat fragile.”
Rio Tinto fell 1.09% in US trade as iron ore continued to ease. Spot iron ore for import to China yesterday cooled 30 cents to US$93 a dry tonne.
Oil slid below US$95 a barrel for the first time since January as weak demand signals in the US continued to outweigh geopolitical concerns. West Texas Intermediate crude oil for delivery in September declined $1.93 or 2% to close at US$94.48 a barrel and was lately trading at US$94.65.
“There is no shortage of oil at the moment; the conflict in Ukraine as well as fighting in Iraq had only a very limited impact on producing and transporting facilities," Andrey Kryuchenkov, strategist at VTB Capital, told MarketWatch. "At the same time, lagging European demand and the seasonal lull in Asia continue to weigh on sentiment."
The bullish mood on equity markets dampened demand for heavens, including gold. Gold for December delivery fell $2.60 to settle at US$1,296.70 an ounce. The contract was recently trading at US$1,296.20.
Signs of tightening supplies helped aluminium extend a rally that has seen prices rise 16% since May. In London, aluminium put on 1%, nickel 0.3%, lead 0.5% and zinc 0.9%. Copper fell 0.6% and tin 0.1%. US copper for September delivery was recently down two cents or 0.7% at US$3.09 a pound.
European stocks neared a three-week high in the absence of negative developments in conflicts in Ukraine and Iraq. The Stoxx Europe 600 index rose 0.57% as Germany's DAX gained 0.96%, France's CAC 0.55% and Britain's FTSE 0.56%.
The dollar was this morning buying 93.03 US cents.
TRADING THEMES TODAY
BIG AUSTRALIAN TO DRAG: There were plenty of positives in the overnight market action, but one big negative is likely to ham-string the ASX today. BHP is the largest company by market capitalisation on the ASX and the negative reaction to its profit report will limit the market's ability to launch any serious attempt at last month's six-year high. It appears that overseas analysts had convinced themselves that BHP would announce a share buyback plan, and spat the dummy when those hopes were dashed. The mood may improve if another heavy day of corporate earnings contains enough upside surprises. Among those due to report are WES, WPL, FMG, CCL, APN, AGK, SXL, APA. CGF, FBU, SRX, CWP, PPX, CQR and ROC (sources: Fairfax, BRR). Of course, none of that will have much effect on the specs, which has picked up in the last couple of days and continues to offer good trading opportunities.
ECONOMIC NEWS: The Melbourne Institute's leading index of economic indicators is due at 10.30am EST. Tonight's US highlight is the release of the minutes from the July Federal Reserve policy meeting. Also due: crude oil inventories.
