The Monday Report (On Tuesday)

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By Greg Peel

Last night the Dow rose one point to 11,952 while the S&P was up one point to 1271 and the Nasdaq slipped 0.15%.

As I write, I was just listening to respected US trader Dennis Gartman and the hedge fund traders on CNBC's Fast Money team agreeing that it is Brent crude, which now represents some two-thirds of the world's oil price benchmarking, which should be considered “the price of oil” as opposed to West Texas crude. WTI was down another US$2.36 last night to US$96.93/bbl while Brent closed flat at US$118.78/bbl and has since traded higher in the after-market. The Brent-WTI spread is now approaching US$22. As Gartman noted, no one could believe it six months ago when that spread hit US$2.

West Texas is responding not only to record inventories at Cushing and the high cost of tight storage but it remains the energy benchmark for US speculators. The perception is that the global economy, and particularly the US economy, is weakening and thus oil demand will fall. The problem is that WTI is not exported, so the rest of the world is looking at growing emerging market demand as well as tightness in North Sea supply, along with current supply issues regarding other popular European import oils from Libya and Nigeria, in maintaining a high speculative price for Brent.

Stock prices in the US energy sector have fallen these past two sessions based largely on the fall in WTI. But one might also expect that a lower oil price would suggest relief across the global economy from a lower cost of energy input. But it hasn't of course, because no one uses WTI. So Wall Street is somewhat isolated from this point of view.

The oil debate is all part of the push and pull on the US stock market at present as the Dow tries desperately to hang onto the psychological 12,000 level. It regained that level early in the session last night but then S&P came out and downgraded Greek sovereign debt to CCC, which is one step above default, and put the country on negative watch. Wall Street lost its early gains on the news until traders realised that (a) S&P is five miles behind the curve and (b) Moody's already did this a couple of weeks ago. So 12,000 was again reconquered.

But the Dow couldn't hold on, and so we finished square. It seems like this has been an endless correction since April, but the reality is the S&P 500 is only down 6%. A “correction” is officially 10%, although it's all just semantics. Since the wider rally began in March 2009 virtually every interim pullback has been 7% before the next leg up. The fall in the ASX 200 is closer to 8.5% before we reopen today, reflecting the added impact of the strong Aussie dollar vis-a-vis a manipulated US dollar.

Despite the Greek rating downgrade, the euro actually traded slightly higher last night sending the US dollar index down 0.4% to 74.51. This didn't, however, help commodities. In those markets traders are still reflecting on the global slowdown. Silver fell another 4% to US$34.78/oz and base metals were again weak, with nickel and tin down 3%. Oil movements have been noted.

Gold also fell US$16.70, or 1%, to US$1515.40/oz. Weakness in gold these past couple of sessions suggests fear, leading traders to “sell everything”. One might otherwise expect that Greek concerns and any talk of QE3, even if misconceived, would have gold higher.

Having lost a cent on Friday night the Aussie regained 0.6 of a cent last night to US$1.0602. The SPI Overnight fell 9 points last night for a net 53 point or 1.2% fall since the ASX was last open.

There is still life, nevertheless, in the US market at the micro level, as indicated last night when shares in outdoor apparel retailer Timberland jumped 44% on a takeover offer from sector peer VF Corp (North Face brand etc). VF Corp is seeing ongoing growth in outdoor activities, particularly from the cohort we in Australia call the Grey Nomads. And infamous luxury brand Prada is looking to an IPO to cash in on China's seemingly insatiable demand for any brand worth boasting about.

In regards to China, today we have the monthly “data dump” which, most importantly, includes the May CPI number. Economists are expecting Chinese inflation to ease in the second half but today they expect a reading of 5.5% on the May headline, up from 5.3% in April. Given Wall Street's perception on Friday that China's May trade data were weak, a strong CPI would still imply more tightening from Beijing and hence the world will lose on the swings as well as the roundabout. The dump includes industrial production, retail sales and fixed asset investment numbers.

Locally, I can now confirm that the NAB business survey will be out today instead of last week as scheduled and similarly the Westpac consumer survey will be out tomorrow, along with Westpac's leading index and inflation expectations results. Today also sees April lending finance and tomorrow brings March quarter dwelling starts and the ABARE crop report for the June quarter.

RBA chairman Glenn Stevens will be giving a speech tomorrow in which he will no doubt provide some explanation as to why the central bank has suddenly reassessed its earlier hawkishness. That will be ahead of the release of the RBA's June quarter bulletin on Thursday which is joined by May vehicle sales.

The US had a bit of a reprieve from domestic data last week but no such luck this week. Tonight it's business inventories, retail sales and the PPI, and on Wednesday it's industrial production, the housing market sentiment index, the Empire State manufacturing index and the CPI. Thursday sees the equivalent Philly Fed index along with housing starts and then on Friday it's the Conference Board leading index along with the fortnightly consumer sentiment index.

With the market expecting an ECB rate rise next month, this week sees some important data in the form of eurozone industrial production, unemployment, inflation and trade balance.

On the local stock front, IAG ((IAG)) is due to hold a strategy day today but beyond that the corporate calendar is now becoming very thin as we move towards the end of most companies' financial year. 

Your Editor Rudi will make public appearances this week on Thursday (Sky Business) and on Friday (BoardRoomRadio). On Thursday evening he will present for two hours (no more tickets available) in an event that is to become available on the FNArena website, once edited into a finished A/V production.

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

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