Stock Market Analysis: Crude Oil Spike Trumps U.S. Jobs Data Improvement

March 7th, 2011Michael

*  U.S. markets fell Friday, despite unemployment below 9%, as crude oil futures topped $US104 a barrel.
*  European markets fell Friday, as the ECB hinted interest rate hikes as soon as April and crude oil prices surged.
*  Most Asian markets advanced Friday, however we expect investor caution will resurface today.
*  Commodities were generally lower, and the U.S. dollar fell. Gold and Crude oil prices rose.

The SPI Futures is trading at the key pivot level of 4850, and closed down 0.6% (or -28 pts) at 4,836.  The key levels for our index this week are 4930 and 4750. M&A activity continues to drive specific stocks. 

With negative leads from overseas markets, the ASX is set to trade lower today.  Expect Gold and Energy stocks to again offer support to the market. Investors need to continue monitoring the escalating tensions in the Middle East, North Africa, and the Korean Peninsular.  

Economics News Today

*  Australian PCI for February
*  ANZ Jobs Data for February
*  Official Reserve Assets for February.

U.S. Markets

U.S. markets fell Friday, despite unemployment dropping below 9%. Crude oil futures topped $US104 a barrel.  The financial and industrial sectors posted the biggest drop in the S&P500 sectors.  Investors had already factored in an improving jobs number and the worries about the potential impact of crude oil above $100 a barrel sent U.S. investors closing their positions ahead of the weekend.

The Dow Jones fell halting a two-day advance, with the pullback led by GE, HP and AMEX all down over 1.3%.  The U.S. jobs market rebounded in February and unemployment fell below 9% for the first time in 2 years, the latest signs of a steadily improving economy. However Non-farm payrolls rose by 192,000 last month, below the forecast consensus of 200,000.

The U.S. dollar traded lower.  The continuing turmoil in North Africa and the Middle East pushed crude oil prices higher and sent investors scrambling into the Swiss franc, gold and other safe-haven assets, away from the US dollar.  The widening interest-rate differentials reigned as the main driver for the US dollar, as investors start to factor in the European Central Bank (ECB) raising interest rates possibly as soon as April, while the Federal Reserve is expected to keep its “accomodative” monetary policy much longer. 

The week ended flat with the major indices managing modest gains. The Dow Jones rose 0.3%, while the S&P 500 edged up 0.1% and the Nasdaq Composite added 0.1%.

High crude oil prices are seen as the biggest barrier to the continuing global recovery, followed by the debt crisis in Europe.  Investors are also beginning to factor in a life without the Federal Reserve stimulus as the program winds down into June.

The Dow closed down -0.7% (or -88 points) at 12,258, while in the broader market the S&P 500 index was down -0.7% (or -10 points) at 1,331 and the tech-heavy Nasdaq ended down -0.5% (or -14 points) at 2,784. The S&P 500 has key support at levels 1324 and 1275.

All 10 company groups that make up the S&P index fell, with underperformers including Financials and Industrials, down over 1.2%, Materials down 0.9%, and Energy down 0.6%.

European Markets

European markets fell Friday, as crude oil prices spiked again and investors digested the news that they may be facing interest hikes as early as April to control inflation amid rising oil prices. 

The benchmark Stoxx Europe 600 index declined 0.8 percent for the week. Banking and automobile stocks led the drop for the session, but the oil services companies offered some support.  This index is still up 2.2 percent for the year-to-date as investors factor in better-than-expected corporate earnings. 

ECB President Jean-Claude Trichet signaled that an increase in official interest rates at its meeting next month “is possible,” and reaffirmed that the bank will continue to lend as much as euro-zone banks want for at least another three months. The euro surged above $US1.40 for the first time since November on Friday as investors reacted to the U.S. non-farm payrolls report and continued to bet on expectations of euro-zone rate hikes. The February Non-farm payrolls report showed smaller-than-forecast jobs growth, which pushed interest rate traders to cut bets on a rate increase from the Federal Reserve at the turn of the year.

In London the benchmark FTSE 100 fell below 6,000, down 0.2% for the week, but this index is still up 1.5 percent for the year-to-date as investors factor in better-than-expected corporate earnings.  In Germany the market erased its weekly gains to end flat on the interest rate concerns.

In London the FTSE 100 index closed down -0.2% (or -15 points) at 6,005, the German DAX was down -0.7% (or -47 points) at 7,178, while in France the CAC was down -1.0% (or -41 points) at 4,020.

Asian Markets

Most Asian markets advanced Friday.  In China the Shanghai Composite index was up 2.2% for the week.  Chinese banks were mostly higher on expectations they will report strong 2010 earnings.  China Merchants Bank and Industrial & Commercial Bank of China added over 1.4%.  In Hong Kong, the market rose and was up up 1.7% for the week.

In Japan the Nikkei Stock Average was up 1.7% for the week. Sumitomo Electric Industries surged 8% after a report that they had developed a rechargeable molten-salt battery.

In South Korea the Kospi rose 1.7% on the back of continued foreign buying, as construction shares recovered after heavy losses in the wake of the Libyan turmoil.

We expect that investor caution will resurface today, with concerns over Middle East and North African unrest and soaring crude oil prices and their potential impact on the global recovery.  April NYMEX crude oil prices closed at over $US104 a barrel in New York, the highest settlement since September 2008. 

In China the SSE Composite closed up 1.4% (or 41 points) at 3,040, while in Hong Kong the Hang Seng Index was up 1.2% (or 286 points) at 23,409 and in Japan the Nikkei 225 Index was up 1.0% (or 107 points) at 10,694.


The Dollar Index was lower at 76.40 on a higher Euro, while the Australian Dollar last traded above parity at 101.54. Commodities were generally lower.

For the session the Benchmark crude NYMEX for December delivery was up 2% (or -$US2.52) to settle at $US104.42.  Copper prices are back at 2-year highs. Copper for December delivery was down -0.1% (or 0.3 cents) at $US4.4720.  April gold was up 0.8% (or $US12.20) at $US1,417.00.

ASX Market News

ASX – ACCC, the corporate regulator, expects alternative stock exchange operator Chi-X Australia will begin operations later this year in competition to the main bourse.

AUN – Austar, the pay television operator, says its majority owner has had talks with Foxtel over a possible takeover bid of the company.

AMP – AMP’s bid for wealth manager AXA Asia Pacific faces its penultimate hurdle, to get court approval, following AXA shareholder voting their approval of AMP’s takeover bid.

CNP – Centro Properties Group has sold all its U.S. assets and looks to merge all Centro properties into one fund in an attempt to return some value to shareholders.

DOW – Downer reported a 1H11 net loss of $104 million, and seeks $279 million in new capital to help deal with the impact of the troubled Waratah train project.  Fitch Ratings agency has resolved its negative rating watch on the company.

FKP – IOOF Holdings (IFL) has increased its stake in FKP from 5.6% to 7.9%.

MSB – Mesoblast will be added to the S&P/ASX 300, and jumped 9.1% after Southern Cross Equities upgraded the stock to “buy.”

NWS – News Corp, the global media empire, is poised to grow further after the British government approved plans by News Corp to buy full control of satellite TV operator British Sky Broadcasting Group PLC.

QBE – QBE has posted a 17 percent drop in FY11 net profit but expects a higher insurance profit margin in 2011.

QRN – QR National, the rail operator, expects coal haulage to be further reduced for the rest of the financial year as a result of recent floods and Cyclone Yasi in Queensland.

STO – NAB has announced it has acquired a 6.4% stake in Santos. 

TEN – Further board room activity with James Packer’s surprise resignation from the board of Ten Network Holdings Ltd less than three months after joining.

WDC – After 50 years at the helm Frank Lowy is handing the day-to-day control of shopping centre giant Westfield Group to his sons.

Local Corporate Reporting
** None
Ex-dividend Date
AEF – Australian Ethical (45 cents)
AGG – AngloGold Ashanti (2.288 cents)
AIZ – Air New Zealand (2.1983 cents)
BFG – Bell Financial Group (4 cents)
BHP – BHP Billiton Limited (45.803 cents)
BPT – Beach Energy Limited (0.75 cents)
BSA – BSA Limited (1 cents)
BXB – Brambles Limited (13 cents)
CDD – Cardno Limited (17 cents)
CLH – Collection House (3.1 cents)
CND – Clarius Grp Ltd (2 cents)
CSV – CSG Limited (2.5 cents)
CYG – Coventry Group (6 cents)
FLT – Flight Centre (36 cents)
FPS – Fiducian Portfolio (5 cents)
HMC – Hydromet Corp. Ltd (0.075 cents)
IHD – iShares S&P High Div (9.8594 cents)
ILC – iShares S&P/ASX 20 (13.782 cents)
IMD – Imdex Limited (1.75 cents)
IOZ – iShares MSCI Aus 200 (3.3545 cents)
LAU – Lindsay Australia (0.5 cents)
MML – Medusa Mining Ltd (5 cents)
MND – Monadelphous Group (40 cents)
NHF – NIB Holdings Limited (4 cents)
OFG – Over Fifty Group (2.5 cents)
PAN – Panoramic Resources (4 cents)
PLB – Plan B Group Hld (1.7 cents)
PNW – Pacific Star Network (0.1 cents)
PPG – Pro-Pac Packaging (1 cents)
RIC – Ridley Corporation (3.75 cents)
SFH – Specialty Fashion (4 cents)
SXL – Sthn Cross Media (7 cents)
TOL – Toll Holdings Ltd (11.5 cents)
TPC – Tel.Pacific Limited (0.4 cents)
WBB – Wide Bay Aust Ltd (30 cents)
WCB – Warrnambool Cheese (4 cents)
Market Summary    

ASX – to open lower
US & UK/Europe – lower
US ADRs –  Broadly Lower
BHP down -0.3% & RIO down ; AWC down -0.3%
ANZ down -1.4% & NAB down -1.1%
NEM  up 1.3%, JHX up 0.7%, NWS up 1.2%
Commodities Stock Index down  -0.8%
Gold Stocks Index up 0.1%
Oil Stocks Index down  -0.7%


By Michael Hevern
Head of Research
Written on 7th  March, 7:15am

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