Jan 17, 2014

Morning Market Report

Markets remained subdued as the Aussie dollar sunk to a 14-year low.

  • The market is down 14 points. The Dow Jones was down 65 at 16,417. The market fell at the start of trade and drifted higher throughout the day in a 100 point range.
  • The market concentrated on the earnings results which were seen as being negative, while electronics retailer Best Buy fell after reporting weak holiday sales. Economic data was generally positive. The weekly jobless claims showed a drop in initial unemployment claims and the Philadelphia Fed manufacturing index rose to 9.4 from 7.0 and expectations of 8.0. The CPI rose by 0.3% which was in line with expectations although the strongest rise in six months, giving an annual rate of 1.5%. The core CPI was more subdued, rising by 0.1%. Ben Bernanke also spoke, defending the performance of the Fed and saying he didn't believe inflation was a major risk.
  • The S&P fell two points to 1,846.
  • Oil was down 0.02% at US$94.15.
  • Gold rose $3.80 to US$1242.10 per ounce.
  • The US$ was weaker against most major currencies. The Aussie dollar was weaker, reaching a three-and-a-half year low of US87.70c --  it’s currently trading at US88.24c.
  • Volatility index rose 2.04% to 12.27.
  • US treasury markets were stronger -- the yield on the 10 year bond fell five basis points to 2.844%.
  • European shares were weaker -- the UK FTSE fell 0.07%, the German DAX was down 0.17% and the French CAC fell 0.30%.
  • European bonds were stronger -- the yield on the Euro 10 year fell 5 basis points 1.775%. The UK 10 year bond yield fell five basis points to 2.806% and the French and German yields also fell by five basis points to 2.228% and 1.775% respectively.
  • Base metal prices were mixed -- nickel rose a further 1.13% and aluminium was up 0.98%, but lead fell 0.83%, copper fell 0.60% and zinc was down 0.34%.
  • Iron ore was down US$1.30 >at US$128.30 a tonne.
  • Super Retail Group (SUL) -- Trading update  for the first half of the financial year. Shares are down 14% in early trade after effectively announcing a profit warning. The company reported a 6% increase in first half sales and it expects to report a profit of $61-62 million for the half, an increase of 0.7% to 2.3%. The overall result was below expectations due to a number of internal challenges across all three divisions, such as the roll-out of a new IT system and supply problems in the auto division. The company said the internal difficulties had been addressed and the firm was implementing measures to strengthen gross margins in the second-half of the financial year. Like for like sales growth across the three divisions was strong -- auto grew 2.3%, leisure 1.6% and sports 5.5%. Gross margins for the auto and sports were in line but leisure was weaker.
  • Ainsworth Gaming Tech (AGI) -- first half profit to rise by 50%.
  • DUE Group (DUE) -- Raises $100 million.
  • Ben Bernanke gave one of his final public speeches as Fed Chairman, before Janet Yellen takes over in February. He defended the performance of the Fed under his management, saying that the majority of studies have shown that quantitative easing is at least somewhat effective. He said the Fed has plenty of tools to manage interest rates, while also having the ability to tighten policy with a bigger balance sheet. He believes inflation is not a significant risk -- with financial instability the key concern. In the Q&A session which followed, Bernanke even managed to raise a smile amongst economists everywhere.  "The problem with quantitative easing is it works in practice but it doesn't work in theory," Bernanke said to a round of laughter.
  • US earnings disappointed last night -- the season so far is being called mixed. Rather than all companies being lifted by general economic stimulus, the trend seems to be clearer disparity between the sheep and the goats.
  • No major data release in Australia today. Company news is limited also -- Regis (RRL), Santos (STO) and Grange Resources (GRR) have quarterly production reports.
  • In the US tonight we have housing stats, industrial production, capacity utilisation, consumer sentiment. Earnings are due from General Electric, Morgan Stanley, Schlumberger, Bank of NY Mellon, Comerica, SunTrust and Wipro. Richmond Fed President Jeffrey Lacker is due to make comments.
  • The $A fell below US 88c last night for the first time since July 2000. A low of US 87.7c was reached. The weak employment data yesterday, which saw 31,600 full time jobs disappear, is believed to increase the chances of a rate cut by the RBA. The unemployment rate remained unchanged at 5.8% but the participation rate fell to 64.6% from 64.8% -- a low not seen since 2005. Extrapolating the data somewhat, if the participation rate had remain unchanged, the unemployment rate would have risen to 6.1% according to St George. As an aside, one on the commentators noted that in the aftermath of the GFC, many people approaching retirement age deferred that move due to dramatic falls in their retirement funds and uncertainty about the future. Much of the recent fall in the participation rate has been in the more mature age groups and it could be said that this is because of higher superannuation balances and increased optimism about the future of retirement savings -- a good thing?

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One thought on “Morning Market Report

  1. Sailor

    The $A fell below US 88c last night for the first time since July 2000.

    Better check this, Marcus – or is this the deliberate mistake to attract comment? From painful memory which I have tried to expunge to no avail, the AUD/USD rate dropped to 0.63 like a stone after Sep 2008. Not as badly, %-wise & at the same time, as the value of my lifetime’s savings in a super account with Asgard, & not as catastrophically for me.

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