The Monday Report

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By Greg Peel

It was shaping up for Friday to be a “give it away and go home early for the weekend” day on Bridge Street but while a soggy open stuck to the script, a turnaround rally did not. From being 23 points lower from the bell, the ASX 200 bounced to be up 36 points at lunch time. The banks and Telstra led the charge but there was also buying of industrials. It was no doubt an opportunity to pick up some yield again at better levels but we did sag a bit towards the close to be up 22 points on the day, after having briefly crossed the 5500 mark once more.

Wall Street followed our lead. The Dow was down 54 points from the bell but then chopped around and grafted back to close up 28 points or 0.2% on the session. The S&P gained 0.2% to 1967 and the Nasdaq added 0.4% to complete what was otherwise a net down-week.

Wells Fargo, America’s biggest mortgage lender, posted its result on Friday and met expectations. The market wanted more and sold Wells shares down 0.7%. The first real barrage of US earnings reports begins this week.

European stocks markets stabilised on Friday following the wake-up call of Banco Espirito Santo’s missed debt payment, as fear subsided over a contagion sell-off. The next round of European bank stress tests is expected to show more of the smaller banks struggling with their balance sheets, but no one is hugely surprised and the ECB is ready to act. The Portuguese market recovered 0.6% on Friday and the major European indices posted small gains.

Libyan oil began to flow again on Friday. At the same time, the International Energy Agency released monthly production figures which showed that while 260,000bpd of northern Iraqi production was lost in the month, production step-ups from Saudi Arabia, Iran, Nigeria and Angola ensured net OPEC production remained steady at 30mbpd. Brent crude responded with a US$2.18 drop to US$106.55/bbl and West Texas followed suit in trading US$2.20 lower to US$100.69/bbl.

The US dollar index was up a tick to 80.18, gold rose US$3.50 to US$1338.90/oz and the Aussie was steady at US$0.9391. The US ten-year bond yield eased another point to 2.52%. While many on Wall Street point to low US bond rates as indicative of a market unconvinced about the US recovery, one need only look to the ten-year yields on German (1.2%) and French (1.5%) bonds to see where simple differentials between ECB-supported euro-yields and US yields subject to Fed rate rise speculation are keeping US yields under pressure. Even in the UK, where a BoE rate rise could happen any moment, the ten-year yield is only 2.6%, for the same reason.

On the subject of a Fed rate rise, the Fedheads were at it again on Friday in their unending quest to confuse. Philly Fed president and FOMC member Charles Plosser suggested a rate rise should be implemented before the Fed’s economic targets are breached rather than after, while Atlanta Fed president and non-voter Dennis Lockhart suggested no rate rise should occur for a year.

Base metal prices drifted to the upside on Friday with a 1% rally in zinc the stand-out, while copper remained steady. Spot iron ore was unchanged at US$96.90/t.

The SPI Overnight gained 12 points or 0.2%.

Citigroup will report tonight in the US to kick off a week featuring a swathe of Dow stock earnings, including banks, big tech and General Electric at week’s end. It will also be a busy week for US data releases.

Tuesday sees retail sales, inventories and the Empire State manufacturing index, Wednesday it’s industrial production, housing market sentiment, the PPI and Fed Beige Book and Thursday brings housing starts and the Philadelphia Fed manufacturing index. Friday wraps up with the Conference Board leading economic index and the fortnightly Michigan Uni consumer sentiment measure.

On Tuesday Fed chair Janet Yellen will make a six-month testimony to a Senate committee and on Wednesday repeat the process with a House committee. We’ve come to learn Ms Yellen can wander a little off script when she’s ad-libbing, as she will have to do under congressional grilling. So will she reveal more than the FOMC might wish? Compulsory viewing.

It’s a big week in China as Beijing releases its June quarter GDP result on Wednesday, in typically rapid time. Economists are looking for annualised growth of 7.4%, unchanged from the March quarter. Beijing will also provide a data dump of July industrial production, retail sales and fixed asset investment on the day, and property prices on Friday.

The Bank of Japan holds a policy meeting tomorrow while Thursday night’s release of a flash estimate of eurozone CPI will keep the ECB alert.

In Australia, the minutes of the July RBA meeting are due out tomorrow but given such little change in policy over the past few months, no surprises are expected. NAB will release a June quarter summary of its business confidence survey on Thursday.

On the local stock front, David Jones ((DJS)) holds a scheme meeting today with regard its takeover offer while the resource sector production report season swings into top gear. Highlights this week include OZ Minerals ((OZL)) tomorrow, Rio Tinto ((RIO)) on Wednesday, Woodside Petroleum ((WPL)) on Thursday and Santos ((STO)) 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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