By Greg Peel
The Dow closed up 82 points, or 0.6%, while the S&P gained 0.2% to 1409 and the Nasdaq lost 0.8%.
By way of explanation of the diverse numbers above, Apple shares fell 5% last night. Specifically, news broke of a Taiwanese iPhone5 component manufacturer noting lower orders from Apple for the March quarter, although an Apple spokesman was quick to point out a sales lull should be expected after the initial launch honeymoon. Generally, the new Microsoft tablet offering is cutting into iPad sales, just as the Samsung Galaxy is outstripping the iPhone, and investors are worried. Technically, Apple is near to an ominous "death cross" on its chart. As by far the largest component of the Nasdasq 100, and an influential weight within the S&P 500, Apple's move provided the down-day for the Nasdaq despite Dow strength, and the S&P split the difference.
Positive influence on the 30-stock Dow and the S&P ex-Apple was provided by a shock development in negotiations over Cliff. I say negotiations, but the reality is that the two parties have not been debating face to face, but have instead aired their views publicly as if we were still in election mode. But the election is over, and it was revealed last night that a letter is circulating the halls of Congress and has so far been signed by forty Republican representatives. In short, and to use my own words, the letter suggests to the Republican team "Obama won the election, for God sake let him have his tax cut expiry for the wealthy and be satisfied with an extension for middle class earners".
The Dow was flat at 11am and facing the prospect of another nothing day. But on the above news, the average shot up triple digits. A Republican-leaning Wall Street may not be thrilled about the idea of tax increases (or reversed tax cuts) for the wealthy, but at least an agreement would end the uncertainty and allow the US economy to get on with it.
Speaking of the economy, the US service sector PMI showed an increase in November to 54.7 from 54.2, providing yet another incrementally positive data point. The ADP private sector jobs number came in at 118,000 new jobs added in the month, down from 157,000 in October, but estimated to be impacted by a Sandy effect of some 86,000 jobs suspended. That number should reverse itself and actually shoot higher given the number of clean up/construction jobs generated by the storm.
Looking at service sector PMI results elsewhere, the eurozone managed a tick up to 46.7 from 45.7 to suggest slightly slower contraction, while the UK slipped to 50.2 from 50.6 suggesting a trend towards stagnation. The Chinese numbers have proven contradictory, with Beijing's official result showing a rise to a healthy 55.6 from 55.5 but HSBC's own assessment indicating a drop to 52.1 from 53.5. Who to believe? The shock result, however, came from Australia.
Australia's manufacturing PMI is in the toilet, and we'll probably find the construction PMI due tomorrow won't be much better. But the November service PMI leapt to 47.1 from a previously woeful 42.8. The sector remains in contraction but the pace of contraction has markedly slowed. Blip or trend? It might depend whether the financial sector is done with its staff cuts yet.
The US financial sector is far from done with its own staff cuts, given last night Citigroup announced it would be reining in costs by cutting 11,000 jobs. The news was well received by Wall Street and Citi shares jumped 7%, sparking a general buying spree in an already improving banking sector. Dow components Bank of America and JP Morgan saw their shares rise 6% and 2% respectively.
The Dow levelled out in the afternoon with a peak of up 138, but suffered very late selling to drag the closing level down to only up 82 (although north of 13,000 once again). This most likely represented "tax selling" as investors take profits ahead of any tax increases Cliff may bring. It appears now the worm has swung to the Democrat's favour, so tax hikes beyond Bush income taxes are also on the cards. Tax selling is another reason cited for Apple weakness, as well as gold weakness. Gold slipped another US$3.40 to US$1693.40/oz last night.
The US dollar index has ticked up 0.2% to 79.80 and the Aussie has slipped back 0.3% to US$1.0449. The RBA statement appears to suggest 3% may represent the trough in the easing cycle, but yesterday's slight miss for Australia's September quarter GDP ? up 0.5% against 0.6-0.7% expected ? has reduced upward Aussie pressure.
Base metals were positive on small moves last night and spot iron ore rose US80c to US$117.90/t. A greater than expected jump in last week's US gasoline supplies saw Brent down US$1.03 to US$108.81/bbl and West Texas down US65c to US$87.85/bbl.
The SPI Overnight was up 6 points.
It's unemployment day in Australia today, ahead of US non-farm payrolls tomorrow night. Tonight the ECB will hold as monetary policy meeting, as will the Bank of England.
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