The Monday Report

This story features RESMED INC, and other companies. For more info SHARE ANALYSIS: RMD

By Greg Peel

The word for Friday’s session on Wall Street was “mixed”, with mixed earnings results and mixed economic data leading to a mixed close in the indices. The Dow closed up 41 points or 0.3% but the S&P lost 0.4% to 1838 and the Nasdaq fell 0.5%.

After the bell on Thursday night, Intel (Dow) posted a result which missed earnings and featured a weak revenue outlook, leading its shares down 2.6% on Friday and impacting on the Nasdaq. American Express (Dow), on the other hand, more than doubled fourth quarter earnings and posted a 3.6% gain, which flowed through to a 4.7% gain for rival and fellow Dow component Visa.

General Electric (Dow) posted a result largely in line during Friday’s session but fell 2.3% nevertheless. Morgan Stanley posted a strong performance, and its shares rose 4.4%.

In a portent for the future, economic bellwether United Parcel Service announced a cut in its 2013 guidance ahead of its result citing an unprecedented surge in last minute Christmas online shopping with which, in combination with heavy snow, the company was unable to cope.

On the economic data front, US housing starts plunged 9.8% in December. However the result was largely expected given November had seen quite a surge, and these numbers can be lumpy, and, again, because of the bad weather in the month. Housing starts for 2013 were otherwise at their highest level since 2007.

Industrial production rose 0.3% in December, in line with expectation. Industrial production rose 3.7% in 2013 to a level 0.9% above the pre-GFC peak.

Consumer sentiment was the downer on the night, falling to 80.4 on Michigan Uni’s fortnightly measure from 82.5 at the end of December. Economists had expected a rise to 84.

So all up, a mixed bag. It’s early days in the US result season and the score card to date is mildly positive, while Wall Street spent last week eagerly looking for signs in economic data that the previous Friday’s weak jobs number was out of line with the economic recovery trend. The conclusion seems to be that the jobs number was a bit of a furphy, given the US dollar has continued its push higher. The dollar index rose 0.4% on Friday to 81.18.

US dollar strength is good news for the Aussie, which fell 0.4% to US$0.8780. Built into the weaker Aussie are last week’s poor local jobs numbers and an expectation of another RBA rate cut. On that subject economists are mixed, with many ruling out another cut unless the data deteriorate further and/or the Aussie pushes higher again. Clearly the preferred outcome is ongoing greenback strength and some more positive Australian data, resulting in lower Aussie but not on the back of expectations of another necessary rate cut.

Both Wall Street and Bridge Street are in consolidation mode early in the year following the significant PE expansion rally of 2013. The hard data now needs to justify that PE expansion, and that means net positive news on corporate earnings and economic performance.

The gold market is not as convinced as the currency market on the US economic data, it would seem. While the greenback rose on Friday gold jumped US$11.50 to US$1254.10/oz following the supposedly weak housing start and weak consumer sentiment data.

Base metals were mixed in London, with nickel finally easing back 0.8% but aluminium taking the baton for a 1.5% gain. Spot iron ore fell US$1.00 to US$127.30/t.

The oils were relatively quiet, with Brent rising US56c to US$106.48/bbl on the new March delivery front month and West Texas adding US13c to US$94.37/bbl.

The SPI Overnight fell 2 points.

The US is on holiday tonight for Martin Luther King Jr Day and all markets are closed. Australia’ focus will nevertheless swing firmly towards China today as Beijing releases the December quarter GDP result. Expectations are for 2.0% growth in the quarter, down from 2.2% growth in September, leading to 7.6% year on year growth, down from 7.8%.

Beijing will also release monthly data for December for industrial production, retail sales and fixed asset investment today, while HSBC will provide a flash estimate of China’s January manufacturing PMI on Thursday.

Also critical for Australia this week is the release of the December quarter inflation numbers on Wednesday. Forecasts are for the headline CPI to rise by 0.7% for an annualised reading of 2.7%, up from 2.2% in September. While this will be seen as uncomfortably close to the top of the RBA’s 2-3% comfort zone, and evoke talk of a rate cut being off the cards, it is the core numbers which matter and they are forecast to rise 0.6% to only 2.3% annualised.

Wednesday also sees Westpac’s consumer confidence survey for January.

It’s a quiet week economically in the US except for Thursday, which sees existing homes sales, the FHFA house price index, the Conference Board leading economic index and a flash estimate of the US January PMI. It’s not a quiet week on the earnings front, with reports due to roll in thick and fast.

The eurozone will also release its flash PMI on Thursday, while New Zealand’s December quarter inflation numbers are due tomorrow after today’s public holiday.

On the local stock front, this week sees the first of the half-year earnings report releases ahead of the season proper in February, with GUD Holdings ((GUD)) first off the rank on Tuesday. ResMed ((RMD)) posts its quarterly profit result on Friday.

There are still plenty of resource sector quarterly reports to get through, and these are proving a frustration for those of us who try to publish a reporting calendar. There is no legal obligation for an Australian company to pick a date and stick to it, unlike any other major stock market, and that’s also true for earnings results. At least three companies released their quarterly reports ahead of assumed schedule last week, and we’ll have to see if the same happens this week. There are several reports scheduled, including BHP Billiton ((BHP)) on Wednesday, we hope, and Santos ((STO)) on Thursday.

Apologies if the FNArena calendar is proven misleading, but unfortunately there’s not much we can do about it.

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

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

Click to view our Glossary of Financial Terms