Overnight: Awaiting Jobs

The Dow closed down 12 points or 0.1% while the S&P rose one point to 2160 and the Nasdaq fell 0.2%.

Well Oiled

I suggested yesterday that outside the big moves we’ve being seeing in commodity prices, the rate-related theme remains the same for Australian stocks. Sure enough the telcos fell another 1.6% yesterday against the tide of the market and utilities were slightly weaker. Bucking the trend was consumer staples, up, 1.4%, given the supermarkets found some buying support.

I also suggested the selling in gold stocks would stop given gold had been steady overnight, but this was not the case overall. Yesterday’s top ten down-movers again included no less than seven gold producers. And fair enough too – gold is down another US$12 overnight.

The materials sector did manage to close up 0.6% nonetheless thanks to support for the Big Miners. The banks gained 0.7% despite an earnings miss from Bank of Queensland (BOQ). There has been talk recently from brokers that after a very poor year, perhaps now it is time to readdress Australia’s Top 20 big caps which have been cast aside in favour of small cap growth names. Those growth names have pushed far enough, and big caps like the miners, banks and supermarkets, are showing value.

So it is said.

The energy sector was nevertheless the predictable winner yesterday, rising 2.0% on the stronger oil price. WTI last night moved above the US$50 mark, so energy should also do well today.

Yesterday’s data release was the August trade numbers, which showed a narrowing of the deficit due to imports falling and exports remaining flat. The deficit is otherwise slowly reducing as the impact of higher commodity prices flows through on flatter export volumes. There is a considerable lag between delivery contract prices set and today’s spot price, so that trend is set to continue for now.

Taper Off

Wall Street traded in a straight line sideways all afternoon, just as one might expect ahead of yet another critical jobs report. But this lack of movement belies the fact the Dow was actually down a hundred from the open.

It is unclear just what was behind initial weakness. The weekly new jobless claims number was positive in the sense of a very low level of claims, suggesting tonight’s non-farm payrolls outcome might be better than the 170,000 expected. This would boost the chance of a December Fed rate hike.

So is that bad? Again we see a market split between “omigod, not a rate rise” and “for God’s sake just get it over with”. It may be that the nervous types sold stocks down early, or perhaps weakness had something to do with Hurricane Matthew, which is posing a serious threat to both life and the Atlantic coast economy.

Either way, mid-morning the ECB vice president announced the central bank had no plan to begin tapering bond purchases (QE) next March. It was this rumour perpetuated earlier this week, alongside Fed rate rise expectations, that provided a boost to the portfolio reallocation theme of which I spoke yesterday.

But why did the ECB wait days, not hours, to quash the rumour?

Whatever the case, the Dow immediately bounced back one hundred points. This implies Wall Street is still happier to suckle on the milk of easy global monetary policy for the time being.

The US ten-year yield continues to push higher nonetheless, up 3 basis points last night to 1.74%.

The other influence on markets this week other than monetary policy has been oil, and last night WTI traded above the US$50/bbl mark on news OPEC was planning yet another informal meeting this month ahead of the official November meeting. This might suggest a further nutting out of production freeze/cut measures and exemptions.

Commodities

West Texas crude is up US80c at US$50.53/bbl.

Base metal moves were mixed last night, with only a 1.7% gain for nickel exceeding 1%.

Iron ore is unchanged at US$54.50/t.

Gold is down another US$12.90 at US$1254.30/oz.

Gold is down on another 0.6% jump in the US dollar index to 96.68, driven by both the strong jobless claims number and the ECB’s announcement.

The Aussie is subsequently down 0.5% at US$0.7586.

Today

The SPI Overnight closed up 14 points or 0.3%. Looks like futures traders are expecting oil strength to pip gold weakness once again.

The local construction PMI for September is out today.

Then its jobs in the US tonight.

Greg Peel

About Greg Peel

Greg Peel joined Macquarie Bank in 1986 and acquired trading experience in equities, currency, fixed income and commodities derivatives, ultimately being appointed director of equity derivatives trading. He later published In With The Smart Money (a plain English guide to the mysterious world of financial markets and derivatives) and acted as a consultant to boutique investment funds. In 2004 Greg joined FNArena as a contributing writer. He is now a director and principal of the company. Greg compliments the journalistic background of the FNArena team with lengthy experience as a financial markets proprietary trader.

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