\n\tBy Greg Peel<\/p>\n
\n\tThe Dow fell 216 points, or 1.4% to under 15,000 for the first time since May 7. The S&P fell 1.4% to 1608 and the Nasdaq<\/span> dropped 1.3%.<\/p>\n \n\tYesterday Australia’s March quarter GDP release showed 0.6% quarterly growth for 2.5% annual growth, down from 3.1% in 2012 and below the 2.7% expectation. It was a disappointing result, but not<\/em> the reason the Australian stock market fell yesterday. The ASX<\/span> 200 was as low at 11.30am as it would be for the day.<\/p>\n \n\tThe ASX<\/span> 200 fell because the Aussie dollar was 1.2 cents lower over 24 hours. Whenever the Aussie falls, foreigners sell stocks. Whenever the Aussie bounces, the market stands still. When foreigners sell Australian assets they must sell Aussie dollars. Until this feedback loop runs itself out and stability returns, a weaker Aussie will spark more selling.<\/p>\n \n\tThe GDP number may not have affected the stock market, but it did increase expectations for another RBA<\/span> rate cut sooner rather than later. Hence the Aussie fell again, and is down another cent over 24 hours. Buckle up. The SPI<\/span> Overnight is down 47 points.<\/p>\n \n\tAdding to weakness in Australia is weakness in Japan, where yesterday the Nikkei fell another 3.8%. The impetus for this fall was disappointment over Shinzo<\/span> Abe’s announced blueprint for structural reform. Abe’s ambitious plan to lift Japan out of the deflationary doldrums involves “three arrows”: monetary policy, fiscal policy, and structural reform. Yesterday Abe announced various ambitious structural reform intentions but was light on detail, and failed to address long hoped for labour<\/span> market reform. Wage reform is seen as the critical element in any structural reform agenda. Abe did not deliver.<\/p>\n \n\tSome statistics. The Nikkei rallied 84% from November to its May high and has now corrected 18%, reducing the rally to 50%. The ASX<\/span> 200 rallied 21% to May and has corrected 7.9%, reducing the rally to 11.5%. The S&P 500 rallied 25% to May and has now corrected 4.7%, reducing the rally to 19%.<\/p>\n \n\tWall Street is the correction laggard, but last night’s drop suggests perhaps the time has come.<\/p>\n \n\tWall Street’s fall was primarily prompted by two factors. ADP reported 135,000 private sector jobs were added in May. This was up from 113,000 in April, but below expectations of 170,000. And the Fed Beige Book, an anecdotal assessment of the economic performance of the twelve Fed regions, featured a downgrade.<\/p>\n \n\tLast year the Beige Book described the US recovery as “modest”, but later upgraded that assessment to “moderate”. The recovery has been “moderate” all through 2013, but last night it was deemed to be “modest to moderate”. It’s subtle stuff, but Wall Street saw confirmation from the central bank that the US recovery has hit a soft patch as we enter the northern summer.<\/p>\n \n\tIt makes perfect sense for a stock market to fall if an economy is slowing, except that the US is upside-down land where bad news is usually good news because it means more support from the Fed. However, Wall Street has got it into its head that the Fed is preparing to taper off QE, seemingly abandoning the economy in its darkest hour. This fear will not subside despite the fact the majority of FOMC<\/span> members have said, over and over again, that the Fed would only taper if the economic data showed sufficient improvement. Indeed, Ben Bernanke has not wavered from his suggestion that were the US economy to slow noticeably, QE could be further increased.<\/p>\n \n\tWall Street is due a pullback, nevertheless. Fear is always a reliable catalyst and rarely rational anyway.<\/p>\n \n\tNot all the US data were weak last night. April factory orders rose 1%. The May service sector PMI rose to 53.7 from 53.1. The UK’s equivalent saw a healthy jump to 54.9 from 52.9 and the eurozone<\/span> slipped slightly to 47.2 from 47.5. The messages were mixed in China, with Beijing suggesting a slip to 54.3 from 54.5 and HSBC’s number rising to 51.2 from 51.1. The basket case was of course Australia, which saw a fall to 40.6 from 44.1.<\/p>\n \n\tThere was little in the way of panic in other markets last night, despite Wall Street’s plunge. The US dollar index fell 0.3% to 82.53 and gold, which might have tanked on a really good jobs number, is up US$3.40 to US$1402.70\/oz. The US ten-year yield has backed away from Fed tapering, falling 3bps<\/span> to 2.10%.<\/p>\n \n\tBase metals continue to be stuck in limbo land, rendered immobile by the counteracting forces of weaker US data and a weaker US dollar. Last night’s moves barely troubled the scorer with the exception of aluminium<\/span>, which rose 1%. Brent crude fell US38c<\/span> to US$102.86\/bbl<\/span> and West Texas rose US42c<\/span> to US$93.70\/bbl<\/span>.<\/p>\n \n\tSpot iron ore remained steady at US$116.60\/t.<\/p>\n \n\tAs noted, the SPI<\/span> Overnight fell 47 points, or 1%.<\/p>\n \n\tAustralia’s April trade balance is due today, and tonight the ECB<\/span> and BoE<\/span> hold policy meetings, but no change is expected. Chain store sales numbers are due in the US.<\/p>\n \n\tRudi will appear on Sky Business at noon and again at 7pm<\/span> for the Switzer Report.<\/p>\n \n\t \n\tAll paying members at FNArena<\/span> are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.<\/em><\/p>\n
\n\tAll overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit. Click here<\/a>. (Subscribers can access prices in the Cockpit.)<\/em><\/p>\n