The Monday Report

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By Greg Peel

The Australian market recovered on Friday from excess volatility relating to the index and futures expiry on Thursday, taking a positive lead from Wall Street and returning prices to previous levels. On Friday night it was Wall Street’s turn to endure expiry volatility, as “quadruple witching” – the expiry of stock and index options, futures and futures options – made its presence felt.

Wall Street opened strongly on Friday morning, taking the Dow up 125 points before midday and leading the S&P 500 to a new intraday high over 1883. The high coincided with a move lower in US bond yields, a dip in the US dollar and a turnaround rise in gold, all of which suggest markets have recovered from the initial shock of Janet Yellen’s “six months” call. The assumption is the Fed chair will likely back down somewhat and qualify the timing of the first interest rate hike at subsequent opportunities.

But the afternoon brought a different picture on stock markets as expiry pressures were exerted. The Dow finished the session down 28 points or 0.2% and the S&P lost 0.3% to close at 1866. The Nasdaq had a tough day, falling 1.1%.

After its strong move up in the wake of Yellen’s press conference, the US dollar index slipped back 0.2% to 80.10 on Friday. The US ten-year bond yield fell 3 basis points to 2.75% and gold rallied US$6.90 to US$1334.90/oz. The Aussie is up 0.5% to US$0.9084.

Commodities markets took note of the fall in the greenback but are also casting a wary eye to Ukraine, the future of which remains uncertain. Further sanctions have been applied by the West and Russia has moved more troops to the border. Putin says no more is going to happen but the rest of the world is ready to expect just about anything.

Base metal prices were mixed on Friday, with copper rising 0.4%, aluminium and nickel rising 1% and tin falling 1%. Spot iron ore was steady at US$110.70/t.

The oils were stronger, supported by a lingering concern over possible Russian retaliation against sanctions in the form of cutting off energy exports to Europe. Brent crude rose US70c to US$106.97/bbl and West Texas rose US65c to US$99.55/bbl.

The SPI Overnight fell 21 points or 0.4%.

Figuring out what Putin might do next is about as simple as finding a Malaysian jet in the Southern Ocean. The world can only watch and hope that whatever is about to happen will not impact on global markets. Meanwhile, the focus returns to US data and the Chinese credit crackdown.

Beijing’s widening of the renminbi trading band last week has resulted only in the currency devaluing sharply, which it is presumed Beijing is trying to achieve. The stronger the renminbi the less competitive Chinese exports become at a time Japan, a very direct competitor, is trying to weaken its own currency (without much success of late). The US is also frustrated with the growing imbalance.

Today sees the release of HSBC’s flash estimate of China’s March manufacturing PMI which could well set the tone for the week. The eurozone and US will also provide flash readings tonight.

It’s a busy week for US data and Wall Street will be looking for further signs of weather impact and a recovery there-from. Tonight sees the Chicago Fed national activity index and tomorrow brings both the Case-Shiller and FHFA house price indices, new home sales, the Richmond Fed manufacturing index and the Conference Board consumer confidence measure.

On Wednesday it's durable goods and a flash measure of the US service sector PMI, while Thursday sees pending home sales and another revision of the December quarter GDP. The market is looking for an upward revision to 2.7% growth from the earlier 2.4% estimate, which was itself a revision from the initial 3.2% call. On Friday it's personal income and spending and the Michigan Uni consumer sentiment measure.

Germany will release its influential IFO business sentiment survey on Tuesday and on Friday Japan will release inflation, retail sales and employment data before the UK also provides a revision of December quarter GDP.

It’s a quiet week economically in Australia, other than a lot of chatter from RBA officials.

It’s busier in the stock market as the late reporters continue to trickle in. Today sees an earnings result from Kathmandu ((KMD)), tomorrow it’s TPG Telecom ((TPM)), Wednesday Nufarm ((NUF)) and Thursday Beadell Resources ((BDR)) and Sigma Pharmaceutical ((SIP)).

Thursday sees the expiry of individual stock options on the ASX.

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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