Stocks were modestly weaker overnight — on both sides of the pond — but the real damage was to be found in commodities where gold was smashed, falling $41 ($1322), silver tumbled 5.7 per cent and even copper was off 1.6 per cent. This is all happening at a time when the global economy is accelerating and jobless claims fall to a seven year low.
The way it normally works it that stronger economic momentum leads to higher commodity prices — more demand and all that. For last night though, that fall in jobless claims to 292,000 from 323,000 (in the week to September 7) was seen as further evidence in favour of a taper.
Having said that, the numbers didn’t come without controversy. It appears that some US states had problems reporting their claims and so an unnamed US official has suggested that the numbers are certainly higher and that they will correct. Whether they do or not and by how much will depend on which states we are talking about — size matters — and how many claims they couldn’t process. It’s not like they didn’t process any.
Only crude managed to push higher — 1.1 per cent to $108.7 and for last night a solid forecast for oil demand over the next year from the International Energy Agency ( 1.2 per cent) seems to have been the main catalyst. Obviously Syria is still in the background as well, although a strike here is looking less likely — or least not imminent — and the rise comes on news that Saudi Arabia’s production for August was the highest in 32 years.
So as to equities — at the bell, the S&P500 was down 0.3 per cent (1683), the Dow lost 25 pts (15,300) and the Nasdaq was off 0.2 per cent. Obviously basic materials and energy stocks were the key underperformers for the session, while telecoms put in some strong gains. For price action elsewhere, the Australian dollar hasn’t done much following an 80 pips or so drop after yesterday’s employment numbers — it sits at 0.9272 as I write. The euro then sits at 1.33 which is up smalls from yesterday afternoon (low of 1.3267 for the session), while yen is at 99.53. Finally, the US 10 year Treasury yield is up about 3 bps or so to 2.9 per cent.
Bits and pieces otherwise. I’m not overly concerned about yesterday’s Aussie jobs numbers — I don’t think they herald a new disaster for the country. For a start, jobs are still being created — 71,000 over the year thus far. There is no jobs destruction and so there is a limit as to how high the unemployment rate can go. We also shouldn’t forget that these figures reflect a business community with no confidence. Recent figures suggest this may be changing and if so we can expect job creation to increase.
Looking abroad, Eurozone industrial production fell 1.5 per cent in July after a 0.6 per cent increase. Then in the US, the budget deficit came in at $147 billion in August, while for the fiscal year to date, which ends September, the deficit is $755 billion — a five year low. Also of interest for those who like this index, the Baltic dry (which tracks freight rates) has shot up 36 per cent over the last month to its highest level in 18months — apparently on strong Chinese demand.
For the day ahead there is very little in our region, certainly nothing market moving. Then tonight the key release is the US retail sales number. The consensus expectation is for a modest rise of 0.4 per cent. There are a few other bits and pieces in addition — business inventories, consumer confidence from Michigan University and producer prices.
Have a great weekend…