Morning Update 10/25/2012
US stocks declined as the Fed called for continued moderate growth and plans to continue its asset purchases. There was nothing new in the Fed policy statement to excite buyers. Buyers had come into the market earlier as Chinese manufacturing came in better than expected.
Netflix plunged 12 percent as it cut its forecast for growth. Facebook surged 19 percent as its sales topped expectations.
Companies reporting 3rd quarter results have been beating earnings expectations by 69 percent, but sales have missed 60 percent of the time. Revenue growth is slowing and companies are beating earnings by cutting costs and accounting. That’s not growth, but contraction and not a positive sign. The S&P 500 is down 3.9 percent from its September 14th high.
Vale SA, the world’s largest iron ore producer, said 3rd quarter profit slid 66 percent and missed analyst’s estimates. Weaker demand in Europe and China lead to lower iron ore prices.
Oil traded at its lowest level since July as supplies increased and demand remains weak. In the US market, crude oil inventories rose 5.9 million barrels compared with expectations of a 1.8 million increase. Oil stockpiles stand at 375.1 million barrels in the US. That’s the highest level at this time of year since the Department of Energy started keeping track of inventories in 1982.
In forex markets the New Zealand and Australian dollars were both higher. The kiwi rose after the central bank left interest rates unchanged and said market sentiment had improved. Newly installed Reserve Bank of New Zealand Governor Graeme Wheeler said inflation is expected to accelerate. Traders had been expecting a January interest rate cut. Those bets are now being unwound.
The Aussie held its gains as swaps traders cut bets that nation’s central bank will reduce borrowing costs next month. Core inflation in Australia came in yesterday at 2.4 percent compared with expectations at 2.2 percent. Traders had been pricing in a 97.1 percent chance of an interest rate cut at the next RBA meeting on November 6th. Those expectations have since lowered to 63.2 percent.
The euro remained lower against most major counterparts on continued euro zone worries. Today German consumer sentiment and French household sentiment comes out.
In the metals market, gold settled below its 50-day moving average for the 2nd straight day. So far gold has been holding above the psychological level of $1700. A decisive break and the next target is $1630-$1600. Silver closed below the key $32 level.
In the grains market, soybeans rose on signs of improving demand for US supplies. Corn slumped as buyers looked elsewhere. Overseas buyers have bought cheaper supplies from other producers.
Today is option expiry day in Australia and that is offering some support today at market open. The S&P/ASX 200 was last up 1.5 points to 4507.3 while the broader All Ordinaries index had risen 2 points to 4532.6.
