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Morning Market Wrap: Mixed data ends Wall Street streak

13 Jan 2020
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US markets appeared to turn defensive following reports of possible economic sanctions against Iran and lower-than-expected wage growth…

Stock Markets

US Markets dropped from records as mixed signals provided by job reports stoked concerns over the health of the US economy and added to the market angst caused by the US imposing further economic sanctions against Iran ahead of the January 15 signing of a trade deal between the US and China.

The 0.1% average hourly earnings reading released Friday came in below a 0.3% forecast and indicated that December was the first month with a reading below 3% on a year-over-year basis since July 2018. Similarly, non-farming employment change data indicated that only 145,000 jobs were added to the economy in December vs an expectation of 162,000. Despite the two readings missing expectations, unemployment remained at a historical low of 3.5%.

A 0.46% retracement (133 points) by the Dow Jones led declines, thanks to a 1.91% decline by Boeing Co (BA), followed by a 0.29% decline by the S&P500 and a 0.27% decline by the NASDAQ.

The S&P500 Volatility Index (VIX) only climbed 0.16% to a mild reading of 12.56 indicating that movements seen were not that of panic nor market wide selling but more so cautionary positioning ahead of key events.

Treasure notes rose (yields dropped) as wage figures erased any inflation worries and drove investors to increase positioning in fixed income positions. Similarly, gold spiked in the final trading session of the week, indicating that defensive position by traders as, perhaps, some feared that further actions against Iran might take place following market close. BMO’s rate strategist, Jon Hill, said that “ Treasuries rallied in textbook fashion after the print (job reading)” and that “ this is consistent with an in-range stabilization after the past week’s geopolitical drama, and tees up a focus on next week’s top-tier data releases as well as any sentiment shift post signing of the Phase one trade deal”.

On Friday, White House Treasure Secretary, Steven Mnuchin, announced that President Trump is issuing an executive order authorising sanctions against “any individual owning, operating, trading with or assisting sectors of the Iranian economy, including construction, manufacturing, textiles and mining.” Mnuchin also outlined 17 specific sanctions against Iran’s largest steel and iron manufacturers and other sanctions intended to target the secretary of the Supreme National Security Council, the commander of the Basij Militia of the Islamic Revolutionary Guards Corps, and other senior leaders close to Iran’s supreme leader, Ayatollah Ali Khamenei.

Additionally, the House passed a resolution to limit President Trump’s war powers against Tehran, on Thursday, with many lawmakers concerned about the prospect of another escalation following the U.S. killing of Iran’s top general Qasem Soleimani last week. Despite this, the New York Times released a report that indicated the US unsuccessfully tried to kill a senior Iranian military official in Yemen on the same day a drone strike killed Maj. Gen. Qassim Suleimani. The unsuccessful airstrike in Yemen was aimed at Abdul Reza Shahlai, an official with Iran’s Quds Force, a potent military organization that General Suleimani had led. Mr. Shahlai was known as a main organizer of financing for Shiite militias in the region.

The ASX200 reset records and added 54 points to close at 6,929 as all sectors, except Materials, rallied higher on the back of steady trading volume and strong US job data released overnight.

Healthcare was the best performing sector and closed 2.11% higher as a result of a 2.82% advance by CSL Limited (CSL). Materials added to declines seen last week and closed 0.36% as BHP Group (BHP) retraced 0.32% and gold miners continued to give up ground on the back of weak gold prices. Some of the worst performing gold miners included Evolution Mining Limited (EVN) and Resolute Mining Limited (RSG), which declined 6.04% and 9.04% respectively.

Blue chips appeared to propel the ASX200 higher on the day with Commonwealth Bank of Australia (CBA) gaining 1.24%, Telstra Corporation Limited (TLS) closing 1.32% higher, Woolworths Group Limited (WOW) advancing 1.61% and Wesfarmers Limited (WES) jumping 1.41%.

Overall investor sentiment appeared to improve significantly during the first full week of trading of 2020, as local investors took lead from US counterparts and reinvested into equity markets following the selldown, or perhaps profit taking, seen prior to the Christmas break. As a result, the ASX200 experienced its best weekly performance since August, and, despite a rocky start to the year, has already recorded a 3.7% gain so far this year.

*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.

Commodities and Currencies

Gold experienced a 0.29% spike and closed at $US1,562 an ounce following US wage growth readings missing forecasts and US oil continued to retrace closing 0.9% lower at $US59.04 a barrel. Separately, Iron ore dropped 0.5% to $US93.92 a tonne.

This article was written by Thomas Brunton – Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via [email protected] or by phoning +612 8302 3633.

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