The Monday Report

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By Greg Peel

The ASX200 stumbled to an unconvincing close on Friday, justifiably unsure as to whether President Putin’s supposed calming of the waters was a genuine attempt to resolve the Ukraine crisis or a mere smokescreen. Fridays are not the day to take big positions at present.

And it was a fair call. I suggested on Friday that the DAX index will fly if German market is prepared to take Putin on his word, and fly it did, right up until the last half hour of trade. The DAX was up 1.1% when a Ukrainian military spokesman appeared on the screen to inform that Ukrainian troops had taken out a Russian military convoy, deep inside Ukraine territory. Western journalists, travelling with the Russian humanitarian aid convoy, also reported a column of Russian armoured vehicles passing in clear sight.

The DAX subsequently collapsed, finishing the session down 1.4%. It was 10.30am in New York when that news came through, at which point a 60 point rally in the Dow just as quickly became a 140 tanking by midday. It was more of a blue chip story nevertheless, given the Dow ultimately ended the session down 50 points or 0.3% but the Nasdaq closed up 0.3%, leaving the S&P flat at 1955.

So what’s going on in the Ukraine? No one knows. What we do know is that news from the Ukraine border is currently overriding other market concerns. The US posted mixed economic data early on Friday, with July industrial production rising 0.4%, beating 0.3% estimates, but Michigan Uni’s fortnightly consumer confidence measure falling to 79.2, down from late July’s 81.8 and missing forecasts of 82.5.

It’s the lowest reading for this index since last November. Only a couple of months ago, the Conference Board’s monthly consumer confidence index was hitting a new high.

Friday was not a data story, however. When the German DAX turned tail, the German ten-year bond yield fell to 0.95%. The US ten-year bond yield finished its session down 6 basis points to 2.34%, having at one point traded as low as 2.30%. The technical picture for US bonds has now changed and traders are talking at least a move to 2.25% for the ten-year. This would nevertheless need to be achieved despite the world being loaded to the gunnels with US bonds and nervous about any hint of a jump in US inflation, which could spark the long expected sell-off.

This will not occur while Ukraine continues to represent uncertainty.

Low global yields are anathema to the RBA’s attempts to try and guide the Australian economy through its difficult transition, as it leads to the ongoing elevation of the Aussie dollar. The Aussie is nonetheless steady at US$0.9321 this morning. The US dollar index fell 0.2% to 81.42 on Friday night.

Gold continued to leave everyone confused by falling US$9.30 to US$1304.50/oz despite the implications of Russian military incursions into Ukraine.

The LME had closed before the news from the region hit the screens and all base metals were stronger by less than 1%. Iron ore was unchanged at US$93.20/t.

It was left to the oils to respond on behalf of the commodities space. Oil prices tanked on Thursday night after Putin played the peace card, but immediately rebounded on Friday night on the news he may have pulled that out of his sleeve. Brent rose US$1.46 to US$103.53/bbl and West Texas rose US$1.70 to US$97.18/bbl.

Local futures traders remained resilient up to Saturday morning, sending the SPI Overnight to a 10 point gain.

We will be reminded this week of all the anticipation, angst, debate and market volatility of recent years as we approached, from months out, the annual Federal Reserve central bankers’ symposium at Jackson Hole, Wyoming. In the past Jackson Hole gave us QE2, QE2.5 and QE3. Last year then Fed chairman Ben Bernanke chose not to attend, but there was much anticipation over the potential tapering of QE3. This year, by contrast, Jackson Hole has snuck up on us with barely a mention.

This is likely because Janet Yellen is expected to use the opportunity to say absolutely nothing new. On that basis, the central banker under the spotlight will be the ECB’s Mario Draghi, who has the potential to bring along a hat with a couple of rabbits in it. The symposium begins on Thursday night and carries through to the weekend.

US housing market sentiment is out tonight followed by housing starts and the CPI tomorrow night and the release of the latest Fed minutes on Wednesday. Thursday brings existing home sales, the Conference Board leading index and the Philadelphia Fed manufacturing index.

Thursday is flash day, with August manufacturing PMI estimates due from Japan, China (HSBC), the eurozone and US.

Vehicle sales numbers are out today in Australia and the minutes of the last RBA meeting are due tomorrow. RBA governor Glenn Stevens will provide a six-monthly testimony on Wednesday in a week otherwise devoid of major data releases. Devoid because it’s Hell Week in the corporate earnings season.

There are too many reports out this week to try and count. Highlights today include Ansell ((ANN)), Aurizon ((AZJ)), Newcrest ((NCM)) and Stockland ((SGP)) while National Bank ((NAB)) will provide a quarterly update.

As the number of reports increases, so too do the conflicting assertions by different brokers as to what date a company will actually report on. We thus beg the patience of readers as we try our best to provide an accurate calendar.

Rudi will appear on Sky Business today at 11.15am, on Wednesday at 5.30pm and on Thursday between 7-8pm for the Switzer Report.
 

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

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