By Greg Peel
The Dow closed up 6 points while the S&P rose 0.1% to 1655 and the Nasdaq added 0.2%.
Bridge Street failed to fire yesterday despite a strong lead from Wall Street, with the July trade balance data weighing on sentiment. Economists had expected a surplus of $0.1bn but instead were delivered a deficit of $0.8bn, which somewhat disappointed given the balance has been in surplus for most of the year. But breaking down the numbers reveals good news and bad news.
The bad news is that the value of imports jumped 4.1% with the main contributor being fuel, up 17.3%. This jump reflects the lose-lose combination of higher US dollar oil prices and a lower Aussie exchange rate, and highlights the side effect of a lower Aussie, being a higher cost to the consumer of imported goods including petrol/diesel.
The good news is that the deficit was nothing to do with a fall in exports to China, indeed total exports rose by 0.2% including a 0.9% gain in iron ore and a 2.8% gain in coal. Here the Aussie is working in favour, lifting the value of exports, but CBA economists note that port data indicate the volume of commodity exports, particularly the bulk minerals, is also trending upwards. This win-win is valuable as it helps to offset the downturn in mining investment.
Indeed such numbers underscore the point that the mining boom is not over. The mining investment boom is over, but the mining boom has simply moved into the production phase and as long as China (and others) keep buying more iron ore and coal (and soon, LNG) then the boom will boom along. A lower Aussie dollar helps at the cash register.
Over on Wall Street last night it was very much a case of doing very little ahead of tonight's jobs number, with a Jewish holiday thrown in to ensure volumes were even lower than the current average which itself is at a 15-year low (contrarian bullish signal?). The day's economic releases were positive and the Dow did rise over 50 points from the bell, but given this particular jobs number is even more important than all previous jobs numbers which were really important already, best to go home square.
Regarding tapering, it appears no longer a story of when but how much. But that will be a story for next week.
The US service sector PMI for August showed a rise to a solid 58.6 from 56.0, and bear in mind services represent the bulk of US GDP, with manufacturing a mere shadow of its former self. Factory orders fell by 2.4% in July, but that is less than was expected. The ADP private sector employment survey showed an increase of 176,000 jobs in August, which was a little below expectation and less than July's 198,000, but given the three-month running average has risen to 188,000 in August from 140,000 in May, tapering is still expected on the August result. The new weekly jobs claims number fell almost to a five and a half year low.
The US stock market may have been gun shy last night but the bond market wasn't, with another sell-off on strong data taking the benchmark ten-year yield up by 8bps to 2.98%. This in turn weighs on the stock market, with 3% considered a bit of a line in the sand at which the yield on dividends looks less enticing against the supposed "risk free rate". The net yield on the S&P 500 is around 2%.
The US dollar, like US bonds, suggested tapering expectations with a gain of 0.6% to 82.63, helping the Aussie down half a cent to US$0.9125. Gold was the tapering victim after its brief, largely Syria-related foray above 1400, falling US$24.40 last night to US$1368.50/oz. If the missiles fly next week, who knows what might transpire.
Base metals were mixed on insignificant moves while the oils rose once more, helped along by the chocolate wheel of weekly US inventories which fell more than expected. Brent gained US33c to US$115.26/bbl and West Texas rose US$1.16 to US$108.39/bbl.
Spot iron ore fell US90c to US$137.10/t.
The SPI Overnight rose 9 points or 0.2%.
Today sees the local construction PMI, then it's US jobs tonight. Tomorrow the longest running election campaign in the history of mankind since Democritus came up with this silly idea will mercifully end, but given a coalition victory has been priced in for about a month there is no expectation of any great stock market response on Monday. China will release its August trade balance on Sunday.
I'll tip a quiet session today, being Friday, but usually when I say that we go up or down by 50 points.