Finally an end to nasty September and its equally treacherous quarter (for investors large and small). July was miserable, August a surprisingly solid month and September at first disappointed, and then shocked us with the size and the extent of the sell off.
Falling commodity prices – especially iron ore, the rising US dollar and falling (finally) Aussie currency, a change in sentiment towards the banks, our market’s anchors, and fears about China (falling iron ore prices) – you name it there were any number of combinations and reasons for the way markets went in the past three months.
The Aussie currency shed around 7% last month as it finally started adjusting to the plunge in commodity prices and our terms of trade.
The falling currency will be the biggest positive influence for the local market and investors for the next few months along with the direction of investor confidence in the big banks. That has taken a few blows in the past three weeks.
US shares had a weak September, and a reasonable quarter (relatively speaking), but commodities copped a hammering (see separate story) and that was a far bigger influence than many investors realise.
Now for the final three months of 2014, what’s ahead?
More of the same say many pundits who earlier in the year, were looking to a solid end to the year.
October is supposed to be the month where big market crashes happen – they do (1929 and 1987 and 2008), but they also don’t happen.
A quiet thought here suggests that we could see a relief rally towards the end of the month as it appears markets will survive the ending of the Fed’s huge spending program.
The same factors remain in play – weak commodity prices, questions about China (watch the political situation in Hong Kong), the US fed’s decision on its easing program, US interest rates, the stronger greenback and weaker Aussie and other currencies.
US third quarter earnings season start next week with Alcoa, and then a group of banks, plus giants such as GE – all of which will tell us something about how third quarter growth has gone for the world’s biggest economy.
The US jobs report on Friday night, our time and before that, the European Central Bank meeting and possible decision to start buying hundreds of billions of dollars of private bonds to try and boost bank lending, will be major short term influences.
Who knows, the combination of an ECB spending porgram, allied to Japan’s ongoing effort, could be enough to offset the end of the Fed’s easing program.
Overnight, MSCI’s all-country world stock index of 45 countries closed the month and the quarter with losses of 3.4% and 2.8% respectively, meaning the slide last month destroyed earlier gains.
It was the key index’s biggest quarterly fall since the second quarter of 2012, when the eurozone crisis was coming to a head.
In the US, the key market index, the S&P 500 dropped of 1.6% in September, but added 0.6% for the quarter, for its seventh consecutive quarterly gain.
The index is still up 6.7% for the year so far and that is starting to look pretty good.
For the month, the Dow lost 0.3% and Nasdaq was off 1.9%. For the quarter, the Dow rose 1.3% and the Nasdaq was up[ 1.9% – both solid efforts given the increased volatility.
Now there was one oddity – amid the losses in most regions, especially in parts of Asia (such as Australia), Chinese shares outperformed.
The Shanghai index inched up 0.1% yesterday to near a 19-month high and has now risen five months in a row.
After years of poor performance, Shanghai jumped 15% last quarter and is up more than 11% so far this year.
That this has been achieved in the face of weak economic news, falling property prices and tells us something is going on – and there is.
The Shanghai and Hong kong markets are about to be joined in a link that will make it a lot easier for foreigners to trade directly in mainland shares on the Shanghai market.
So Shanghai prices are rising sharply in anticipating of this happening, hence the outperformance compared to the reality of what’s happening in the local economy and other markets.
Watch for a similar surge when a link up with the Shenzhen market happens in the not too distant future.
Bye bye 2014? The Australian stockmarket ended the June quarter yesterday under the level at which it started the year.
September wiped out all the gains of the first eight months of the year and took an estimated $90 billion off the value off the Australian shares, starting with the banks in particular as they all dipped into correction territory in the closing 10 days of last month.
While big falls in the value of the dollar and iron ore prices helped to pull the market lower, it has been a significant softening in market enthusiasm for the big banks that has stood out.
The ASX 200 Index and the All Ordinaries Index each rose half a per cent to 5292.8 points and 5296.8 points respectively yesterday in a bit of last day window dressing (a pretty feeble effort).
The market lost 5.9% last month, the biggest monthly loss for the ASX 200 since it dropped 7.3% in May 2012.
The Commonwealth Bank fell 7.4% in value, Westpac lost 8.3% to $32.14. National Australia Bank slumped 7.6% to 32.54 and the ANZ dropped 7.5% to 30.92.
I suppose the optimists would say that they can only rise from today onwards as we move towards the end of year reporting season for the ANZ, NAB, Westpac and Macquarie.
Probably the initial trigger for the sell off was the slide in iron ore prices in the quarter, making nine months of falling prices so far this year.
BHP Billiton shares lost 7.6% in the month to end at 33.87, Rio Tinto dipped nearly 5% to $59.58 and Fortescue Metals plunged more than 16% to end the month and quarter on $3.48.
For the year so far, Rio Tinto shares are down 13%, BHP shares have lost 11%, Vale in brazil has seen its shares lump 29% and Fortescue shares have shed 40%.
