The Monday Report

This story features ALS LIMITED, and other companies. For more info SHARE ANALYSIS: ALQ

By Greg Peel

Bridge Street finally staged a recovery on Friday after a dour week which saw the ASX 200 fall a net 1.2%. The index is up 9% for the year which is a solid return in any fund manager’s calculation. The feature of 2013 as opposed to prior years has been the lack of any third quarter dip – the sort of “Sell in May” stuff that leads us to a September/October plunge before a recovery in November and a “Santa Rally” to year’s end. With no glaring catalysts for ongoing strength as 2013 winds down, best to lock in some profits.

There may be a month to go before Christmas but the holidays are approaching, everyone’s weary after another eventful year, and financial district offices will soon begin to thin. That’s not to say Bridge Street can’t end on a bit of a flurry if Wall Street continues to push into record blue sky.

Aiding that possibility might be RBA governor Glenn Stevens' increasingly aggressive stance on the Aussie dollar. Stevens’ rhetoric has shifted from bemused to surprised to frustrated and finally bloody well annoyed about the failure of the Aussie to reflect Australia’s shifting economic dynamic (ie, fall), with global QE and a lack of Fed tapering in particular spoiling the party. Last week Stevens suggested in a speech the central bank may be forced to drop its usually passive stance and directly intervene in the currency for the first time since the collapse of Lehman necessitated a globally coordinated response.

"Our position has long been, and remains, that foreign exchange intervention can, judiciously used in the right circumstances, be effective and useful," he said.

The bottom line is the Aussie was trading at 94.50 on Tuesday and is this morning trading at 91.77. The currency dropped 0.7% to US$0.9166 by Saturday morning despite the US dollar index falling 0.4% to 80.71.

On Friday night it was the turn of the broad market S&P 500 to break the psychological barrier, breaching 1800 for the first time with a 0.5% gain to 1804. The 30-stock Dow passed 16,000 the session before, and on Friday added 54 points or 0.3% to 16,064. The trifecta may not be far away, with the Nasdaq rising 0.6% to 3991, albeit the tech-weighted index did see 4000 back in 2000.

There was no specific incentive for what was a gradual drift up on Wall Street on Friday. Traders and commentators continue to debate Fed policy, but largely agree that it will be more accommodative than not. Throw in what was considered a pretty reasonable third quarter earnings season and signs that the October government shutdown did not have as dramatic an effect on the economy as feared, and Wall Street has little reason not to press on into 2014.

Christmas retail sales are now in focus in the US as we look ahead this week to “Black Friday”.

Copper ticked up further on Friday night, by another 0.7%, in a session which saw now familiar small moves in either direction among the metals. Gold was steady at US$1242.80/oz, while spot iron ore rose US20c to US$136.50/t.

Commentators began 2013 with expectations the Brent-WTI crude oil spread would narrow as bottlenecks in US infrastructure were removed and ever increasing supplies from Canada and the US shale fields began to flow freely. This was true to an extent, but recently the spread has blown out again on a geographical divide. The US is facing domestic oversupply, pushing down the price of West Texas, while Brent has been caught up in all things Middle East, including the Iranian nuclear negotiations. On Friday, Brent rose US93c to US$111.15/bbl and West Texas fell US72c to US$94.84/bbl.

Last night there was a breakthrough, of sorts, in Geneva. Iran agreed that for six months it would not enrich uranium beyond 5%. In return, the West agreed to lift some sanctions, including precious metals trade. Both sides emerged claiming victory but neither is yet fully satisfied. The negotiations will drag on, and in the meantime Israel is not amused. Iran is chuffed with its “right” to enrich uranium, just not to weapons grade. Supposedly.

The news is not expected to have a huge impact on oil prices tonight, being a bit of a middling result and merely a step along the way.

Bridge Street is looking forward to a positive start to the new week with the SPI Overnight closing up 23 points or 0.4% on Friday night.

Black Friday is approaching, but it is not as ominous as it sounds. The US will break for Thanksgiving on Thursday this week and Friday is traditionally one of the biggest Christmas shopping days on the calendar, and the bellwether for seasonal retail sales strength. Having spent the year building inventory, the books of US retailers supposedly go “into the black” with the strength of sales on the Friday after Thanksgiving.

Before we get to the Thursday holiday, the US will cram in a wide range of data releases.

Tonight it’s pending home sales, and tomorrow it’s housing starts, the Case-Shiller and FHFA house price indices, the Conference board monthly consumer confidence measure and the Richmond Fed manufacturing index. On Wednesday it’s the Conference Board leading economic index, durable goods, personal income & spending, the Chicago Fed national activity index, the Chicago PMI, and the Michigan Uni fortnightly consumer sentiment measure.

By Wednesday afternoon Wall Street will be a ghost town ahead of the holiday on Thursday for which all markets are closed. Friday is a half day, with only a handful of skeletons in attendance before the NYSE bell rings at 1pm.

Japan will provide a data dump up to week’s end, with retail sales on Thursday and inflation, industrial production, manufacturing and unemployment on Friday.

In Australia we begin the countdown to next week’s September quarter GDP release with quarterly construction work done on Wednesday and private sector capital expenditure on Thursday. Friday brings monthly private sector credit numbers.

The local AGM season is starting a slow wind-down for the larger caps but there is still a bit of corporate action this week. ALS ((ALQ)) will report its interim result today while Aristocrat Leisure ((ALL)) will report its full-year tomorrow and both Harvey Norman ((HVN)) and Woolworths ((WOW)) will join a handful of companies holding AGMs.

Bank of Queensland ((BOQ)) will hold its AGM on Wednesday and Programmed Maintenance ((PRG)) will report its interim. Primary Health Care ((PRY)) and Lynas Corp ((LYC)) will hold AGMs on Friday.

Rudi will appear on Sky Business today at 11.15am, on Wednesday at 5.30pm and on Thursday at noon.

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

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