The Monday Report

This story features NATIONAL AUSTRALIA BANK LIMITED, and other companies. For more info SHARE ANALYSIS: NAB

By Greg Peel

It was another solid day on Bridge Street on Friday with all sectors again finishing in the green, although by varying degrees as portfolios are reset post-correction (assuming the correction is now spent). The market closed near its new target level of 5400.

Friday’s major data point was that of Chinese property prices, which showed a fall of 1.3% in September. Prices have been falling month on month for the past five months but September marks the tip-over point, with prices now down year on year. Banks have become more cautious in their lending as a result, and property developers have been cutting prices to try to move stock, which only helps to stoke the downside fire.

In response, Beijing has injected liquidity into banks to target more accessible mortgages. But just as it took the government some time to slow down China’s property bubble on the upside, in order to avoid a feared hard landing, so too is it expected an arrest of the current slide will require some patience.

Fear spread in Brisbane over the weekend as a teenage girl presented with Ebola symptoms, having returned from West Africa. But she has been this morning cleared of the virus. The New York doctor who has contracted the virus remains in isolation and debate rages over just how the US should deal with the Ebola threat. Word is President Obama is considering mandatory three-week quarantine for anyone who flies in from West Africa, fever or not, but in the meantime, one of the two nurses who treated the Dallas Ebola victim and contracted the virus has recovered and been discharged, while the other no longer shows any signs.

Thursday night on Wall Street featured an afternoon pullback after a strong morning session on the news of the New York Ebola victim, but on Friday night the fear of a subway-transmitted epidemic dissipated. The positive news from Dallas will likely further ease concerns for the market tonight.

Corporate earnings thus returned to focus and on Friday night Dow components Microsoft and Proctor & Gamble saw share price rises of around 2.5% on well-received numbers. Microsoft beat both revenue and earnings forecasts and while P&G matched expectations, Wall Street liked the news the company was planning to divest of its Duracell battery business.

On the data front, US new home sales rose to an annual rate of 467,000 in September, pipping August’s 466,000 but missing forecasts of an increase to 473,000. It was nevertheless not enough to kill the positive mood.

At the closing bell, the Dow was up 127 points or 0.8%, roughly in a straight line, while the S&P gained 0.7% to 1964 and the Nasdaq gained 0.7%. The S&P marked its biggest weekly gain in 2014.

The US dollar index slipped 0.1% on Friday night to 85.73 which helped the Aussie to gain 0.3% to US$0.8787, while gold was steady at US$1232.50/oz. The US ten-year bond yield was also steady, at 2.27%.

The gains on Wall Street came even as oil saw some return to weakness. Brent fell US56c to US$86.21/bbl and West Texas fell US66c to US$81.32/bbl. Oil prices initially rose in the session on the latest Saudi Arabian shipment data, which showed a decline and suggested perhaps the Saudis had begun to back off their exports. Or maybe lower shipments just reflect lower demand, which was the conclusion by session-end.

Friday night saw participants heading home from LME Week in London, leaving base metal markets rather sparse. Aluminium fell 0.8%, lead 1.4% and nickel 1.7% while the other metals largely held their ground.

Iron ore fell by US20c to US$79.80/t.

The SPI Overnight closed up 18 points or 0.3% on Saturday morning.

Last night the ECB published the results of its latest European bank stress tests. On Friday night a rumour spread across European markets that 25 of the 130 tested banks had failed, and would require additional capital. The rumour was proven to be accurate but the good news is that 12 of the 25 had already raised new capital prior to the result. Italian banks scored worst with nine failures, Greece came in second with three, with the balance evenly spread across both southern and northern eurozone members. Spain was a stand-out with zero. In the wash up, markets are generally relieved.

We enter a new week with the global Ebola scare likely to ebb, at least from a financial market point of view, having heard not a peep out of Ukraine for some time and no longer paying much attention to Iraq. The OPEC production meeting still looms as a possible source of volatility late next month.

The US earnings season rolls on but the focus this week will also be on the Fed policy statement due on Wednesday night, and the first estimate of US September quarter GDP due on Thursday night. The Fed surprised at its last meeting by bringing global economic considerations into its US policy mix, and there has been much chatter from Fedheads in the interim with regard the capacity to introduce QE4 if necessary. Forecasts have GDP growing at 2.9%, down from June’s 4.6%, which represented a rebound from the weather-impacted March quarter.

The US will also see pending home sales tonight, and durable goods, the Richmond Fed manufacturing index, the Case-Shiller house price index and Conference Board monthly consumer confidence tomorrow night. Wednesday is the Fed meeting, Thursday the GDP, and Friday sees personal income and spending, the Chicago PMI and the Michigan Uni fortnightly consumer sentiment measure.

The eurozone begins the week with the influential German IFO business sentiment survey and ends the week with a flash estimate for October CPI.   

Japan will deliver monthly data right across the week, including retail sales, industrial production, unemployment and inflation numbers.

New Zealand is closed for a holiday today and the RBNZ holds a policy meeting on Thursday.

It’s a quiet week data-wise for Australia, with new home sales due on Thursday, and private sector credit and the September quarter PPI on Friday.

By the way if anyone is wondering why I never highlight the weekly ANZ/Morgan weekly consumer confidence reading, I simply don’t see much point in jumping at volatile weekly shadows. Monthly trends are more informative. For the same reason, I don’t pay a lot of attention to weekly jobless claims data in the US, other than the underlying trend.

On local stock front, resource sector quarterly production reports continue this week and there is an avalanche of AGMs to be held, featuring too many to highlight. But we are also counting down to bank result season, with National Bank ((NAB)) kicking off proceedings on Thursday and ANZ Bank ((ANZ)) following suit on Friday. BT Investment Management ((BTT)) also reports on Thursday and Macquarie Group ((MQG)) on Friday.

Woolworths ((WOW)) and Wesfarmers ((WES)) will publish quarterly sales figures on Thursday.

Rudi will appear on Sky Business on Wednesday at 5.30pm and on Thursday at noon and again between 7-8pm for the Switzer Report. On Friday he will join Mark Todd and Roger Montgomery for an hour long session of Your Money, Your Call. Bonds versus Equities.
 

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

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