Daily Market Reports | Dec 19 2014
By Greg Peel
The Dow rose 421 points or 2.4% while the S&P rose 48 points or 2.4% to 2061 and the Nasdaq rose 2.2%.
The ASX200 does not often rally 104 points in less than two hours but it did yesterday, before closing up 49. At the end of the day there were only two sectors that drove the strength, being energy (up 3.3%) and materials (up 2.0%), otherwise it would have been a mildly positive session. Futures and options expiry would contributed to the volatility, as would repositioning around today’s index rebalance, and the battle between the book-squarers and window-dressers as many in the market wrap up it before their summer breaks.
Bridge Street has been itching to put in a big rally for over a week now, only to be knocked down again and again, but the case for Australian resources stocks being oversold and worth a punt at these levels has become a popular one. Oil prices were off again last night, but given the rally on Wall Street, it’s unlikely to matter.
I did ask yesterday who that bloke in the red suit was by the chalkboards.
I also noted, again, that most sensible players on Wall Street leave Fed-day volatility to the mugs and take the time to consider the Fed statement and in this case, press conference, before deciding which way to play it. Well they looked, and they saw, and they said “It is good”. A “patient” Fed can only offer a positive impetus for US stocks, providing basically a “best of both worlds” scenario. The US economy is improving, but the Fed’s not going to rush in and spoil that party.
But again I point out that the last weeks of December and the US quadruple witching expiry, which is tonight, usually throw up a whole lot of volatility.
Europe was in on the act as well last night, ahead of the Wall Street open. Putin pulled out his best King Canute impression and talked up the Russian economy in an attempt to halt the ruble’s freefall. It worked, for now. Over in Germany, the monthly IFO business sentiment index saw a rise to 105.5 from 104.7 in November, suggesting German entrepreneurs are becoming increasingly optimistic about a lower euro, lower oil prices, and the prospects of Putin having to crawl back into his hole with regard Ukraine.
The German index rose 2.8%, with London up 2.0% and France up a whopping 3.4%. Forgotten for now, it seems, are concerns over Greece, where last night Prime Minister Samaras failed in round one of three to win parliamentary approval for his presidential nominee. Fail three times, which it is assumed he will, and Greece goes to the polls and probably exits the eurozone.
But European enthusiasm flowed across the pond and Wall Street took off to a flyer, building on its strength all session. No one seemed to mind that the Philly Fed manufacturing index slowed to 24.5 from last month’s 40.8, but then 40.8 is patently ridiculous. On the other hand, a flash estimate of the US service sector PMI for December indicated a jump to 56.9 from 53.6 in November, while the Conference Board’s leading economic index for November rose 0.6%.
The ultimate rally in the Dow was not just the biggest this year, but the biggest since November 2011. Perhaps Santa had a flat battery on the sleigh, and has been waiting all this time for the NRMA. Before the Fed statement, the Dow was threatening to fall through 17,000, and two days later it’s almost at 17,800. I’d still like to wait and see what happens after tonight’s expiry, nonetheless.
Realistically, the Fed said nothing new.
And perhaps ironically, West Texas crude fell US$1.28 to US$54.71 last night and Brent, in its new February delivery front month, fell US$1.57 to US$59.61/bbl. Wall Street might be exuberant but out in the real world there are still real concerns about slowing global growth and the potential impact of the Russian financial crisis. Base metals followed down oil, with all prices falling around 1%.
Iron ore, as always, marched to its own tune and rose US10c to US$68.00/t.
Gold is caught in the headlights as usual, last night ticking up US$2.40 to US$1196.40.oz despite growing talk Russia will need to use the gold it was madly buying earlier in the year to prop up the ruble. The US dollar index rose another 0.4% to 89.24, assisting in commodity price falls, while the Aussie is up 0.3% to US$0.8156.
The best market to monitor to determine just what Wall Street really feels about the Fed is the US bond market. Last night’s 6 basis point rise in the ten-year yield back to 2.20% suggests that yes, the bond market also sees the Fed statement and press conference as net more dovish than was feared.
Hang on to your hats, the SPI Overnight is up 75 points, or 1.5%, for the new March contract. The buyers will have to pile in quickly this morning if they’re going to make to lunch on time, and still be standing for tonight’s office party.
If you have no reason to do so, do not go anywhere near the Sydney or any CBD later tonight.
The ASX indices will rebalance today – stocks in, stocks out – and tonight everything expires in the US. All good fun.
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