The Monday Report

This story features METCASH LIMITED, and other companies. For more info SHARE ANALYSIS: MTS

By Greg Peel

As the news slows down out of Europe, with the tide turning away now from Greek debt restructuring, downward pressure on the euro has eased. This means upward pressure on the US dollar has also eased, leaving the reserve currency to feel the impact of domestic concerns. 

And feel them it did on Friday night, following some more weak monthly data. 

Private incomes rose 0.4% in April as expected, but consumer spending rose only 0.4% compared to a 0.5% expectation. It was the lowest gain for three months. Added to the first quarter spending result which showed a 2.2% annualised increase compared to 2.7% expected, the signs are that the sector which contributes 70% of US growth is waning.

After a better than expected result last week for new home sales, Friday's pending home sales number for April showed a fall of 11.6% which came as a shock. Last April saw a peak of pending sales as buyers rushed to beat the expiry of government stimulus measures, and 2011's number is 26.5% lower.

The one saving grace is that the Michigan Uni consumer sentiment gauge rose to 74.3 from 69.8 a month ago. Sentiment is nevertheless highly correlated with gasoline prices which have recently come off somewhat following the big fall in the oil price. In February the peak was 77.5 so consumers are still less enthusiastic as they were earlier in the year, as the aforementioned spending data would attest.

Gasoline prices will now become even more important on a seasonal basis as the Memorial Day long weekend marks the beginning of the traditional summer driving season. Prices have slipped below their peak over US$4/gal in most parts but are still pricey in relative terms. On Friday night West Texas oil rose US52c to US$100.75/bbl while Brent was steady at US$115.03/bbl.

Commodity prices elsewhere were stronger however, given the US dollar index fell a solid 1.1% to 74.76 on the back of the weak data. The Fed may have been talking QE exit strategies and the timing of the first interest rate hike at the last meeting but any excitement from Wall Street has now abated, with traders no longer assuming the first hike in November. 

Gold rose US$17.10 to US$1536.50/oz given the lower greenback and silver added 2% to US$37.96. Base metals were torn between the weaker dollar and the implications of its weakness but all finished about 1% higher on the session, except for aluminium which was up 2.5%.

Trading was light and lacklustre in stock markets ahead of the long weekend before the Dow added 38 points or 0.3% and the S&P gained 0.4% to 1331.

Positive commodity prices were unsurprisingly offset by a strong Aussie dollar, which rose 0.7% to US$1.0710. After a couple of strong sessions last last week, the SPI Overnight added 5 points or 0.1%.

Wall Street has an extra day to contemplate the slowing US recovery, given US markets are closed tonight for Memorial Day, before another barrage of economic data releases this week including the all important employment numbers.

Tuesday night sees the Case-Shiller house price index along with the Chicago purchasing managers' index (PMI) and the Conference Board consumer confidence survey for May. Wednesday brings construction spending and vehicle sales along with the ADP private sector unemployment number.

Wednesday is the first business day of the new month so that means manufacturing PMIs released across the globe for Australia, China, the UK, eurozone and US.

Thursday in the US sees factory orders and chain store sales while Friday brings the official unemployment number (plus 195,000 expected). Friday is also global services PMI day.

The highlight for Australia this week is the release of the March quarter GDP result on Wednesday. The result is expected to be heavily impacted by weather events in the quarter, and while some economists are pitching as low a negative 1.0% quarter-on-quarter, consensus is sitting at negative 0.3% compared to the December quarter's 0.7% growth. This would put annualised growth at 1.8% compared to the December rate of 2.7%.

Ahead of the GDP number we still have some quarterly releases to get through, with today bringing March quarter corporate inventories, sales and profits and Tuesday net exports and the current account. Tuesday also sees monthly building approvals and private sector credit.

Wednesday it's the GDP along with the HIA house price index and the manufacturing PMI, Thursday it's retail sales and the trade balance, and Friday it's the services PMI.

The AGMs continue to flow in Australia this week but once again it's mainly small caps. Metcash ((MTS)) will deliver its FY11 result on Tuesday while Wesfarmers ((WES)) will have an investor day on Thursday.

Japanese data will be in the spotlight this week as the first real evidence of the impact of the tsunami shows up in April industrial production and employment numbers and the manufacturing PMI on Tuesday.

The Poms love their bank holidays so the UK markets will also be closed tonight, which means no metal markets as well. It will be a fairly brief Overnight Report tomorrow, one presumes.

Rudi will be appearing on Sky Business at 11.15 this morning with the results of the latest FNArena-AIA investor sentiment survey. 

For further global economic release dates and local company events please refer to the FNArena Calendar.

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