Wall Street Slides on Uninspiring Data
By no means was it a collapse, and equities halved their losses in the last 30 minutes of trade in New York, but the pullback of 40 points on the Dow witnessed overnight was quite reasonable given the soft durable goods orders that pricked the rally thathad stretched to four days.
The S&P500 lost 0.7% (almost twice the Dow’s fall) after US oil inventories rose unexpectedly, which pushed the price of crude to its lowest point in a week (wow, a whole week!). The Fed also let it be known that growth was tapering off in many spots,with declines in commercial real estate and the expiry of that tax incentive for new homebuyers cited as the key factors behind that observation.
Source: Bloomberg
Roundup
Copper had a good night, with the red metal reaching its highest spot price for 11 weeks on a belief that activity in China and, to a much lesser extent, the US would be sufficient for that key base metal to remain in high demand.
Comments out of Beijing that the Chinese economy was well positioned and solidly based on firm economic fundamentals had seen the Shanghai Composite rally 2.3% Wednesday, so that was enough to spur the believers higher still.
Treasury yields for 10-year paper continued to flip above and below the 3% point and last night finished beneath that depressed point as prices rose. Not exactly a broad flight to safety, with the greenback declining against the yen, but the USD didappreciate against most. The NZ central bank’s decision to hike rates to 3% this morning obviously saw the Kiwi gain.
Hot on the heels of the previous day’s very poor consumer confidence readings traders decided to retrace some of the steps they had leapt over the last week.
Droughts in parts of Russia and other parts of Europe sent wheat futures to a 13-month high, while corporate earnings from a bunch of names you almost certainly would not recognise disappointed. Merck came under pressure after revealing it settled over3,000 death claims made in respect to the Vioxx fiasco.
Good for Some
ConocoPhillips however reported twice its net from a year ago, no doubt pleasing key investor Warren Buffett who bought in at the very top last year. Exxon and Chevron release their results tonight and tomorrow respectively – expect some breathtakingnumbers, but Exxon has failed to reach consensus in 4 of the last 5 quarters, so the planet’s biggest company would want to shine to break the trend.
If Exxon can come up with $1.60 in EPS, expect a favourable response.
RIM to Attack iPhone
Blackberry maker Research in Motion popped higher as word that it will unveil a new model to take on the iPhone directly when it reports tonight. The iPhone is not penetrating business to the point that the BBerry is on the way out, but many more suits areflirting with the idea of seeing other mobiles (my wife thinks I am having an affair with mine).
Hard thing to juggle – BBerry users like the hard keyboard, but the screen is too small to be practical for documents and such. Wait and see, but with quality out of RIM in some doubt (battery life vastly exceeds the Apple, but for heaven’s sake fix thecases and improve the web browser), Apple might be on the verge of cracking its only real rival in the world of business.
Figures That Are Hard to Spin
Unemployment rose in 75% of metropolitan areas across the USA last month. Those numbers are skewed by the entry of about 1 million high school graduates into the labour market, but employers remain unable to pick up the slack and a headline nationaljobless rate of beyond 10% looks assured – possibly even before Christmas.
DC is in reasonable form – 6.4% jobless, but steer clear of El Centro California, with 27.6% of adults there who actually say they want a job unable to land one.
Boeing Dunked as Orders Subside
A President keen to cut back on defence spending and a traditional market that is still awaiting the delivery of the vaunted Dreamliner were nominated as the key drivers of a 21% profit fall for the last quarter. Orders are nice, but they cannot be countedas revenues just upon the execution of a contract, and with the company having battled industrial action and a poor commercial sector in the last 36 months it is little wonder that earnings are feeling the pinch.
Overall profit was up, but defence revenues and earnings fell back by 8%. Expect Boeing to expand its horizons and target the Middle East especially, and shave jobs in many key plants.
Departure Time?
The next major catalysts for this group will be the Government’s decision on a $35b airborne tanker contract (initially awarded to rival Northrop, but challenged successfully by Boeing on the Hill), as well as the deliveries and movement into daily serviceof the 787.
Each month that delivery is delayed, penalties increase. Costly business, this one, but with orders for 3,304 new planes on its books, the major threat to Boeing remains counterparty risk.
Diamonds in the Rough/ Garage
Hats off to the bloke who picked up a few negatives at a US garage sale for 40 bucks, then had them developed and realised they were undiscovered Ansell Adams shots.
Now up for auction and set to receive bids of up to $200m. Nice find.
Europe
European stocks also fell back from their July highs, with risky assets trimmed and a modest reallocation into safer asset classes seen on Wednesday.
The data out of the US fuelled fears about the sustainability of any global recovery (expect this line to be used incessantly in coming years), and barring the miners’ enjoyment of the higher metal prices the session was a predictable and welcomedretreat.
Australia Claps CPI Figures
Well, not down 25 Simon, up 32. Right, like last week’s Flutter with a Fiver – which could not have been more wrong – I underplayed the desire of the bulls to haul us higher yesterday, even if the gains on our local market followed a very unappealing nighton Wall Street.
So be it, and those that pinned back the ears yesterday would likely be a little humble this morning.
Roundup
The XJO finished at its highest point since the winter solstice, with a good day for the broader market built on the back of a particularly fine few hours for the major banks, which each banked strong gains.
BHP rose above $40 for the first time in a while (that TCD reader who bought at $20 and said he’d buy me lunch when they rose to $40 – I haven’t forgotten), while the slip in the gold price weighed on NCM and soon to be subsidiary Lihir Gold.
ArcelorMittal issued a weaker outlook for the coming 6 months, citing weaker demand out of China so the likes of BlueScope and OST were hardly going to outperform.
QBE rebounded – already repaying those who bought in a day earlier. IAG, which has missed profit forecasts for the fourth year running, was steady, but not very attractively so.
CPI Gives Jules a Break
The CPI reading of 0.6% came in well below the almost 1% forecast, and although traders applauded the now remote possibility of a rate rise next week, they might look closer to see that absent Governmental largesse that figure might have gone from apleasingly mid-range point to a concerningly low level.
Still, Gillard would be very pleased that an election campaign rate rise is not something that she needs to manage, with the ears of the Cabinet room’s walls the main problem right now.
Dunce hat to those (many) chief economists who predicted, time and again, that the TCR would be at 5.25% by Christmas. Gold star for moi.
Where To?
Well, things can change quickly, but it looks like rates will be on hold into next year now, with the rest of the world experiencing a feeble recovery and Australia has to be affected, even if we remain the Lucky Country. Very pleased that a spike in CPIdidn’t give Stevens the excuse to itch his trigger finger, as that could potentially have been a bridge too far.
Interesting to watch deposit rates now – with BBSW falling back yesterday after the announcement.
Today
Maybe a day late, but I’ll back up with the down 25 suggestion once more. Not yet the economic evidence to suggest it’s smooth sailing from here, and with the S&P500 hovering around a technical pivot expect caution to rule today.
Cheers,
Simon Wallace
Group Relationship Executive
+61 3 8614 8400
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Source: Bloomberg 
