Daily Market Reports | Jul 29 2015
By Greg Peel
The Dow rose 189 points or 1.1% while the S&P gained 1.2% to 2093 and the Nasdaq added 1.0%.
Relief
The ASX200 opened sharply lower yesterday in response to the Chinese market’s late 8.5% plunge on Monday before holding its breath for the 11.30am Sydney time open in Shanghai. The Shanghai index promptly fell another 5%, and the ASX200 dipped further to be down 59 points.
The sudden late sell-off in Shanghai on Monday was apparently triggered by rumours that the state-owned China Securities Finance Corp – the entity charged with buying stocks on behalf of the government in order to head off a stock market crash – had now accomplished its mission and was exiting the market. On the open of trading yesterday, a China Securities Regulatory Commission spokesman declared this not to be true.
The spokesman said the CSFC will “increase its holding” of stocks “at appropriate times” and will continue to play its role of “stabilising the market”. And he also pledged, as regulator, to identify “malicious” stock sales by individuals designed to wreak havoc on the market.
In other words: It’s a free and open market, but if you sell you’ll be taken out and shot.
We cannot criticise the Chinese government for acting as buyer of the last resort in times of dangerous volatility as this is also common practice in mature Western markets. No one has ever met a member of the Fed’s Plunge Protection Team, for example, but everyone knows they’re there. On odd occasions during the 2008 turmoil sudden and inexplicable buying on Wall Street evoked knowing looks of recognition that the PPT was in action.
But whatever the US government did, rightly or wrongly, in 2008, it did not shut down half the stock market, order state-owned companies to buy shares (there aren’t any anyway) on pain of death and kick down the doors of anyone with a sell order.
The question is one of whether the Chinese stock market is in any way representative of the Chinese economy, as stock markets definitively are in capitalist economies, or simply a sideshow casino that the rest of the world can point at and laugh but ignore on the basis of its irrelevance to the rest of the world or even China itself. The latter seems more the case, but for the flow-on impact of debt-backed investment into global commodity markets and the impact on Chinese consumer confidence.
On that note, as the Shanghai index made its way back to be up 1% late in the Bridge Street session yesterday, it was the local energy sector which enjoyed the biggest rebound, up 0.8%. The rest of sectors ultimately traded off small moves up and down by the close. The Shanghai index closed down 1.7% at the death, but the world stopped worrying.
Rebound
European stock markets, which had fallen heavily on Monday night, subsequently bounced back. The German and French indices both gained a percent.
Wall Street opened hesitantly, but soon stepped into steady buying mode to break the worst down-streak since January and send the Dow up 200 points. Leading the charge was, again, the energy sector.
With all that’s been weighing on oil prices recently, the last thing oil producers needed was additional questions raised about the ongoing strength of Chinese demand. A big correction for the US energy sector had prompted “oversold” calls, and so it was the trigger of Chinese stock market stability, and a small rise in oil prices, set off a short-covering scramble. The materials sector also took heart from a rebound in metals prices, and as luck would have it, last night saw some positive US earnings reports following a period of disappointment.
Parcel delivery services are considered a reliable economic bellwether so an earnings beat from UPS saw its shares jump 5%. Ford (Dow) blew auto market analysts away with a stunning June quarter, sending its shares up 2%. Diversified resource sector leader Freeport McMoRan was able to entice an 8% rally just by announcing cost cuts.
The only downer on the day was the Conference Board’s monthly measure of US consumer confidence, which plunged to 90.9 from 101.4 in June when economists had forecast a slight slip to 100.0. However fingers were pointed at lingering Greek and Chinese market concerns during the survey period.
Commodities
Oil prices, as noted, enjoyed a mild recovery last night after their long fall, with West Texas rising US76c to US$47.76/bbl and Brent rising US19c to US$53.06/bbl. But the real action was in the metals.
The US dollar index rose 0.1% last night but that was not going to stand in the way of a short-covering scramble on the LME on technical triggers and Chinese stability. Aluminium rose 1%, copper and lead rose 2%, nickel and zinc rose 3% and tin rose 4%.
Iron ore gained US80c to US$52.20/t.
Gold is steady at US$1095.30/oz.
The Aussie dollar has similarly rebounded, jumping 0.9% to US$0.7340.
Today
The SPI Overnight closed up 27 points or 0.5%.
The Fed will conclude its July meeting tonight and issue a statement which will hold the world’s attention, but likely disappoint due to lack of anything new.
Rudi will make his weekly appearance on Sky Business' Market Moves, 5.30-6pm and later on, from 8pm onwards, he will host Your Money, Your Call Equities.
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