Daily Market Reports | Nov 28 2014
By Greg Peel
One of the most fundamental inputs to growth in any economy is capital expenditure, and more so to an Australian economy dependent on the export of raw materials and the extensive infrastructure required in that pursuit. Yesterday saw the release of September quarter data for actual capex spend, upon which next week’s GDP result is highly dependent, and forward-looking capex intentions, which provide a guide to growth thereafter.
Actual spending came in at 0.2% growth, surprising economists. Building and structures fell by 1.9% but machinery and equipment rose by 4.4%, suggesting fears of a big mining capex drop-off may have been a little impulsive. The estimate of 2014-15 capex intentions came in at $153bn and within that number, non-mining capex is intended to remain steady while mining capex is actually intended to increase.
Blow me down.
That’s a 2% increase on intentions at the June quarter release, leading CBA’s economists, for one, to now estimate a net fall in capex over 2014-15 of 6% when mid-year they were assuming 10%.
Maybe deputy RBA governor Phil Lowe was on to something when in his speech on Tuesday night he suggested Australia should stop feeling so depressed and realise the economy is doing pretty well, thanks very much, and would be firing along if we could just get this Aussie down to where it should be.
Having surged unexpectedly on Wednesday, yesterday the ASX200 held its ground to close right on 5400 in a very mixed session. The materials and energy sectors, which were bought up on Wednesday on what looked like at least one big general market order, returned to earth yesterday to recognise ongoing falls in commodity prices. Materials fell 1.1%, and energy fell 2.8% in what may prove simply the warm-up for today’s action. The supermarkets and discretionary retailers traded blows, the former up 1% and the latter down 1%, while healthcare received a 1.9% boost as the market tries to adjust for an underwhelming Medibank.
Put it all together and the index was up 4 whole points.
There won’t be a lot of impetus to buy today, one would assume, given Wall Street was closed for Thanksgiving and the energy sector will no doubt be set for another dive, thanks to the Saudis.
Despite protestations from poorer OPEC members, such as Algeria, Venezuela, and an export-sanctioned Iran, OPEC leader Saudi Arabia stood firm last night in Vienna to ensure the bloc would not cut its production quotas as a response to the falling oil price, as it has always done in the past in such circumstances. This time it’s different, the Saudis insisted, because no longer does OPEC hold sway over global oil pricing. Indiscriminate North American shale oil production is now the global swing factor, so what’s the point in OPEC members sacrificing their revenues when (a) it won’t make much difference to the price and (b) it only helps the Americans, who are the ones who really should be cutting production.
If the Saudis are correct in believing OPEC production no longer determines the market balance, they might care to look at last night’s price movements. Brent crude, which is mostly closely tied to OPEC production, fell US$5.19 or 6.7% to US$72.59/bbl, while West Texas crude, which is the benchmark for North American production, fell US$4.68 or 6.4% to US$69.04/bbl.
At least it will be cheaper to fill the tank. It must be remembered, nonetheless, that Nymex was trading electronically last night instead of on the floor and both it and the ICE exchange saw thin trading in the absence of the Seppos.
The fall in oil prices may ultimately prove a good thing for energy importer Germany, but it certainly won’t help the country’s headline inflation. Last night an estimate of German CPI for October showed 0.5% annual growth, down from 0.7% in September and below 0.6% forecasts.
The German DAX nevertheless rose 0.6% last night while both the French and UK indices were relatively flat.
LME trading was also thin last night and metal prices mostly drifted lower. Aluminium, which has been the best performer this week, fell 1%, while copper lost another 0.4%.
Stop the presses, iron ore rose US$1.70 to US$69.70/t. Could it be that below 70 is a bridge too far?
Gold lost US$7.50 to US$1189.90/oz on the lower inflation expectations of cheaper energy but this was assisted by a 0.4% rise in the US dollar index to 87.96. Cheaper oil is a trade-off for the US economy given America is both a globally significant producer of oil and the world’s biggest consumer of it. There were big falls in the currencies of more oil export-dependent nations last night, particularly those of Russia, Norway and Canada.
But not Australia, which, fair enough, imports more than it exports at this stage until the big LNG projects come on line to make us the world’s biggest exporter of that form of seaborne energy. The Aussie is off a tad to US$0.8547.
The SPI Overnight closed down 17 points or 0.3%.
US markets will open again tonight but only for a token half day. Whether many hung over oil traders decide to show up at the Nymex is unknown, but the market was setting itself short ahead of the OPEC meeting and there are some juicy profits to be had along with the leftover turkey. About three men and a dog, and the CNBC team, will front up to the NYSE. There are no data releases due.
India will report its September quarter GDP today and Japan will provide a data dump of October industrial production, retail sales and jobs numbers. A flash estimate of the eurozone CPI for October is out tonight along with Europe’s jobs numbers.
Australia will see October private sector credit data and there will be a handful of AGMs.
On Sunday, the Swiss referendum will be held to determine whether the central bank will be forced to hold 20% of its reserves as gold. If the answer is “yes”, gold may “do an oil” on Monday, but in the opposite direction.
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