Australian Stock Market Report – Morning 2/4/14

MORNING REPORT
(8am AEDT)

In US economic news, the ISM manufacturing index fell from 56.5 to an 8-month low of 51.3 in January, short of forecasts for a result near 56.0. Construction spending rose by 0.1% in December, close to forecasts.

In Europe, Germany´s purchasing managers index hit its highest level since May 2011 in January. China´s official services sector purchasing managers index fell from 54.6 to 53.4 in January.

European shares fell on Monday with investors disappointed by economic data in the US and China. Shares in Lloyds Bank lost 4% in the UK after setting aside 1.9 billion pounds (US$3.1 billion) to cover potential claims related to the improper selling of insurance products. The FTSEurofirst 300 index fell by 1.4% with the UK FTSE down by 0.7% and the German Dax lower by 1.3%. Mining shares also eased in London trade with BHP Billiton shares down by 1.2% while Rio Tinto lost 0.8%.

US sharemarkets fell on Monday in response to weak manufacturing data. While investors conclude that the drop in the manufacturing gauge may be weather-related, many have opted to pursue a more cautious stance. At the close of trade, the US Dow Jones was down by 326 points or 2.1% with the S&P 500 lower by 2.3% while the Nasdaq was down by 107pts or 2.6%.

US long-term treasury prices rose again on Monday (yields lower) as investors embraced ´´safe haven´´ government bonds in response to a weak reading on the US manufacturing sector. US 2 year yields fell by 4 points to 0.30% while US 10 year yields fell by 7 points to 2.58%.

Major currencies rose against the greenback in European and US trade on Monday in response to a weak US manufacturing reading. The Euro rose from lows near US$1.3475 to US$1.3435, and was near US$1.3530 in afternoon US trade. The Aussie dollar rose from lows near US87.35c to highs near US88.25c, and was near US87.50c in afternoon US trade. And the Japanese yen strengthened from 102.34 yen per US dollar to JPY100.82 and was trading near JPY100.95 in afternoon US trade.

World oil prices fell on Monday on fears that slower growth in China and the US would crimp demand for energy. However serving to offset the declines to some extent was more severe winter weather on the US east coast, buoying demand for heating products. Brent crude fell by US36c or 0.3% to US$106.04 a barrel while US Nymex crude fell by US$1.06 or 1.1% to US$96.43 a barrel.

Base metal prices fell up to 1.8% on the London Metal Exchange on Monday with aluminium leading the declines. But tin bucked the trend, up 0.5%. The gold price rose on Monday as investors embraced ´´safe haven´´ assets with the Comex gold futures up by US$20.10 or 1.6% to US$1,259.90 per ounce. The iron ore price was unchanged at US$122.60 a tonne.

Ahead: In Australia, the Reserve Bank Board meets. In the US, factory orders and weekly retail sales data are issued.

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