The Monday Report

This story features ROCKETBOOTS LIMITED, and other companies. For more info SHARE ANALYSIS: ROC

By Greg Peel

Word from Athens is that a resolution on the haircut and debt rollover is "very close" now, having been "close" for two weeks. Nadal and Djokovic have got nothing on this epic drama. On Friday it was hinted at that an agreement had been reached on the elusive interest rate on the new bonds, which would put it somewhere between 3.5 and 4%, and that a deal may well be done by the weekend. 

Well it hasn't been, with a new stumbling block emerging in the form of a German push for the EU or IMF or anyone other than the Greek government to have control of the sovereign nation's budget — a suggestion the Greeks have swiftly rejected. So we might as well settle back for another week of stalemate.

Meanwhile back in the real world, quarterly earnings results continue to draw Wall Street's focus. With another week gone it's further apparent that the December quarter will prove a disappointing one, not in terms of actual profits made necessarily, but in terms of overblown estimates from analysts. Friday night saw Dow components Chevron and Ford both post misses, sending their share prices down 2.4% and 4.2% respectively. Dow stocks posting misses earlier in the week also continued lower.

Again we might consider that the brief marking of a new 52-week high for the Dow last week has brought in the profit-takers, and that profit-taking has now gained some momentum. Yet while the Dow closed with a 74 point or 0.6% loss on Friday, the Nasdaq gained 0.4%. The mantra of “buy quality” perhaps has sent the blue-chips just a bit too far ahead of themselves in the new year rally. The S&P split the difference with a 0.2% loss to 1316.

There was some broader disappointment on Friday nevertheless, with the release of the first estimate of US December quarter GDP. Growth of 2.8% fell short of the 3.0% estimate, but after only a 1.8% gain in September that still seems like a good result. The problem, however, was in the make-up of the gain.

Around 60% of the quarter's 2.8% growth was contributable to inventory building. Not only did this mean sales numbers disappointed – and we recall that the US consumer is the engine of the US economy – it suggests that retailers may well have over-ordered on hopes of a decent Christmas and are now stuck with stock they'll have to discount to shift. As to how much further stock can be discounted is a case in point – my colleague Rudi was in New York over Christmas and noted many signs in stores offering discounts of 80 and 90%.

It looks like the points go to Ben Bernanke. While Wall Street has been pushing stocks higher in a “risk on” flurry this month on belief a resolution is nigh in Greece (hasn't happened yet) and the US economy was improving (not on this GDP result) the Fed provided further monetary stimulus with its extended zero rate timeline. There was, nevertheless, some news on Friday which had everyone on Wall Street excited.

Talk is that Wednesday will see Facebook list for the first time following an IPO. There remains debate about which exchange it will list on (NYSE, Nasdaq), which broker will score the lead underwriting role (Goldman Sachs, Morgan Stanley) and just what value will be put on the company (US$80-100bn). We'll be back in the old dotcom boom days of sky-high PEs, but on those numbers Facebook should come in at about the 25th largest company in the S&P 500. It could even make the Dow at the next reconstitution, along with America's second biggest company Apple.

What has Wall Street most excited about the Facebook IPO is its potential to draw mom and dad (or perhaps in this case, son and daughter) retail investors back into a market from which they've been conspicuously absent for some time now. Volumes on Wall Street have been so poor for the past several months, including during the recent rally, that brokers have been readying themselves to begin jettisoning staff. Maybe Facebook can do for America what Telstra did for Australia many years ago in terms of inspiring interest in the stock market from the retail level. Maybe.

Turning to other markets, the poorly received GDP result sent the US dollar index tumbling 0.7% to 78.85, pushing the Aussie up another 0.3% to US$1.0658 and gold up another US$15.40 to US$1736.70/oz. The weaker greenback provided a buffer for what might otherwise have been more dramatic pullbacks in base metal prices, but aside from a 1% fall in lead and a 2% fall in zinc, the metals were largely unchanged. Movements in the oil price were again muted as well, leaving Brent at US$111.46/bbl and West Texas at US$99.64/bbl.

The SPI Overnight was up 5 points. It seems we can't find any reason to sell the local market at present, despite the ever-rising currency.

Facebook talk will no doubt dominate in the US as we begin this week while there are still plenty of earnings results to come. A lot of the biggies are now out of the way, however. And Greece talk will surely play its part, whatever that might be.

It's also a busy week for US economic data this week, beginning with personal income and spending tonight. Tuesday sees consumer confidence, the Chicago PMI and the Case-Shiller house price index, while Wednesday sees construction spending, the manufacturing PMI for January and the ADP private sector jobs numbers. Thursday is chain store sales and Friday brings factory orders, the service sector PMI and non-farm payrolls.

Wednesday is the first of the month so it's manufacturing PMI day across the globe, with all of Australia, China, the eurozone, UK and US reporting. Then they do it all again two days later with service sector PMIs.

Australia will also see the NAB business survey tomorrow along with private sector credit and the RP Data-Rismark house price index. Wednesday it's December quarter house prices, new home sales and the manufacturing PMI, Thursday sees building approvals and the trade balance and Friday the services PMI.

This week sees the last of the Australian resource sector production reports with ROC Oil ((ROC)) out today, and all of AWE ((AWE)), Ivanhoe ((IVA)), Murchison ((MMX)), Paladin ((PDN)) and Tap Oil ((TAP)) out tomorrow.

Then we'll start focusing on six-monthly earnings reports, of which there are two of note this week – Energy Resources of Australia ((ERA)) on Wednesday and News Corp ((NWS)) on Thursday. The trickle will continue into next week until building into a flood for the last two weeks of February.

Rudi will be appearing on Sky Business on Thursday at noon.

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

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