The Monday Report

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By Greg Peel

Local Drift

A poorly received earnings report from Santos ((STO)) and a weaker oil price overnight saw the energy sector lead the local index lower on Friday. Energy’s 1.6% fall was offset by some buying in the supermarkets but it was otherwise a familiar Friday session as profits were taken ahead of the weekend.

The impetus to square up after this month’s strong rally was also provided by the meeting between Greece and its creditors, held on Friday night.

Greek Retreat

Prime Minister Tsipras has a bit of explaining to do to his electorate, it would seem, while the rest of the world can only sigh with frustration. On Friday night the EU/IMF agreed to extend Greece’s bail-out by four months. Only two days before, the Greek government was insisting only a straight-out loan would be acceptable, without austerity requirements. Instead, Greece simply has another four months of the same.

Why the back-down? Did the Eurogroup suggest a few home truths that had the Greek officials sweating? Whatever the case, the extension is as yet subject to Greece providing an agenda for reform by tonight, such that a final decision can be made by Friday. Greece is dancing and the EU is calling the tune. This would appear to be exactly the opposite of the bravado that saw Tsipras elected in the first place.

As for the market, the old “kick the can down the road” cliché is back and no one is particularly happy. Greece has been an issue for four years and the market would just like to see a result – one way or the other – so we can all get on with it. We may still get one this Friday, possibly even a Grexit, but it looks like we’re all just going to have to convene again in four months’ time to go over the same old ground.

Wall Street High

There was nevertheless relief on Wall Street that the Greek meeting did not result in some sort of global turmoil. It was a good enough excuse to buy stocks again, after a relatively quiet week, although Wall Street doesn’t seem to need too much encouragement at present.

The Dow rose 154 points or 0.9% to a new all-time high 18,140, while the S&P rose 0.6% to a new all-time high 2110. But it is the Nasdaq that’s getting most of the attention of late.

It’s mostly to do with a surging Apple, which for reasons known only to those at Dow Jones is not in the headline average despite having a bigger market cap than any Dow stock, but the Nasdaq hit 4995 on Friday and it seems only a brief matter of time before the all-time intra-day high of 5132 is regained. That high was set in March 2000, and by March 2001 the Nasdaq was 63% lower.

This time it’s different, of course, given we’ve all had fifteen years to come to terms with the inter-web. It is also notable that beyond Apple, today’s Nasdaq actually has a greater weighting towards biotech stocks rather than the types of “tech” stocks which led the bubble and bust at the turn of the century, most of which were untested dotcoms. Some, like Amazon for example, managed to survive but most are now long forgotten. And we didn’t have “social media” back then. Text messaging seemed very space aged.

PMIs

The flashers were out and about on Friday night. The eurozone’s flash manufacturing PMI for February disappointed at 51.1 but the service sector read of 53.4 exceeded expectations.

The US flash manufacturing PMI came in at 54.3, beating a forecast 53.7.

A strong US PMI is often enough to encourage commodity buying but on the LME, trading remains very thin and uninspired. All metals bar nickel fell around 1% on Friday night other than lead, which fell 2%. LME traders are awaiting the return of the Chinese on Wednesday.

Over in the oils, the spread between Brent crude and oversupplied West Texas crude continues to widen. Brent fell US31c to US$60.08/bbl on Friday night and West Texas fell US$1.10 to US$50.34/bbl.

Gold fell US$6.50 to US$1201.60/oz, probably on disappointment nothing dramatic happened in Greece, while the US dollar index was steady at 94.38. The US ten-year yield ticked up 2 basis points to 2.13%.

The Aussie has suddenly shot up 0.7% to US$0.7840. The shorts were probably getting tired of waiting for it to break down through 77.

The SPI Overnight closed up 14 points or 0.2%.

The Week Ahead

Presumably the Greek drama will continue to provide irritating background noise this week as the reform agenda is submitted tonight and argued over ahead of Friday night’s new deadline.

China returns from its break on Wednesday and HSBC takes the opportunity to release its flash estimate of China’s manufacturing PMI. On Sunday Beijing will release its official manufacturing and service sector numbers.

Japan will provide a data dump on Friday of inflation, industrial production, retail sales and employment numbers.

The Fed has its eyes firmly fixed on US data and it’s a big week this week. Tonight sees the Chicago national activity index, existing home sales and a flash services PMI reading, tomorrow night it’s the Case-Shiller house price index, Conference Board monthly consumer confidence and the Richmond Fed manufacturing index, and Wednesday brings new home sales.

On Thursday it’s the CPI, durable goods and the FHFA house price index and on Friday it’s the Michigan Uni fortnightly consumer sentiment measure, the Chicago PMI, pending home sales and the first revision of the December quarter GDP result. Having been caught out by the disappointing 2.6% first estimate, economists are forecasting a revision down to a lowly 2.1%.

It’s a big week in Australia as the last and most crowded week of the corporate reporting season runs into the first of the December quarter data releases, leading up to next week’s GDP result. We’ll see quarterly construction work done and the wage price index on Wednesday and the all-important private sector capex numbers on Thursday, while Friday brings monthly private sector credit data.

Among the results, we’ll see those of Lend Lease ((LLC)), BHP Billiton ((BHP)), Oil Search ((OSH)), QBE Insurance ((QBE)), Atlas Iron ((AGO)), Qantas ((QAN)), Ramsay Healthcare ((RHC)), Harvey Norman ((HVN)), Woolworths ((WOW)) and many, many more.

Rudi will appear on Sky Business on Wednesday at 5.30pm. Later that same day he will host Your Money, Your Call. On Thursday he will be back being a guest 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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