The Monday Report

This story features WOOLWORTHS GROUP LIMITED. For more info SHARE ANALYSIS: WOW

By Greg Peel

On the Nose

It was a rotten day for the Fresh Food People on Friday as the local market shook off a 34 point initial plunge for the index to finish 20 points up on the day. All sectors were in the green, bar one. The consumer staples index fell 5.4% thanks to a weak profit report from Woolworths ((WOW)) and a subsequent 9.5% share price shellacking.

It made for an interesting session on the last day of reporting season after which one might ask, with regard the 50 point turnaround for the index, what has investors so enthused? Is it expectations of an RBA rate cut on Tuesday? Or is it expectations of a leadership change in Canberra? Or both?

Another interesting week ahead.

US Economy

Wall Street saw the first revision of the US December quarter GDP on Friday night. The first estimate of 2.6% growth was revised down to 2.2%, which is a tad better than the 2.1% expected. But for many on Wall Street, looking at numbers from as long ago as October when we’re entering March is a little pointless.

Among more recent data, Friday night saw the Chicago PMI slide to a five-year low of 45.8, indicating contraction, and the fortnightly Michigan Uni consumer sentiment index fall to 95.4 from 98.1, but pending home sales rise to their highest level since August 2013.

Wall Street ultimately stumbled to a soggy finish for the session, and the month. The Dow fell 81 points or 0.5% and the S&P lost 0.3% to 2104. The Nasdaq continued to shy away from the ominous 5000 mark, falling 0.5% to 4963.

February nevertheless proved a very strong month for the US indices.

China Eases

Last week HSBC released its take on China’s manufacturing PMI for February and forecast a surprise rebound to expansion, at least to 50.1. Beijing’s official equivalent, released on the weekend, does not dispute improvement but the rise to 49.9 from 49.8 still implies contraction. The variance is nevertheless hardly sufficient to quibble about.

Beijing’s official service sector PMI showed a rise to 53.9 from 53.7. HSBC will release its final numbers for February this week.

Along with the PMI data came news from the PBoC on Saturday it was cutting China’s one-year lending rate by 25 basis points to 5.35%, and the deposit rate by the same margin to 2.50%. The PBoC began cutting its rate late last year, and this year has also cut the bank reserve ratio requirement. Economists expect more of the same as the months progress.  

Oil Rebound

Friday night’s session saw oil prices yet again sloshing around, this time to the upside, as they have done for the past several sessions without achieving anything. West Texas rose US60c to US$49.30 but Brent rose US$1.71 to US62.15/bbl, further widening the price gap and underscoring the oversupply of WTI.

Most notably, February was the first month in eight to register a net rise in the price of oil. For seven straight months, oil had tanked.

The US dollar index was flat on Friday at 95.29 but base metal prices saw a soft session in London. Nickel and lead were each down 2% while the others saw small moves.

Spot iron ore rose by 50c to US$63.00/t.

The Aussie is 0.3% higher than it was on Friday morning, at US$0.7811. The stage is set for tomorrow’s RBA meeting.

The SPI Overnight closed up 3 points.

The Week Ahead

It’s a big week for Australia this week, as attention turns away from the micro of corporate earnings and back to the macro of the economy.

Tomorrow the RBA will meet and if the expectations of most economists are accurate, will cut the cash rate to 2.00%. There will be disappointment in markets if this is not the case.

Today sees December quarter corporate profit numbers and tomorrow the current account, which includes the December quarter terms of trade. Considering what the prices of iron ore and oil were up to in the quarter, the trade balance may be a bit of a shocker. But then we did enjoy a level of relief from the falling currency.

Indeed, for Wednesday’s GDP release economists are forecasting 0.7% quarter on quarter growth, up from 0.3% in the September quarter. Annual growth is nevertheless expected to slip to 2.6% from 2.7%.

Outside of the quarterly data, the local monthly data will also flow thick and fast this week.

Today we see the TD Securities inflation gauge, February house prices, January new home sales and the manufacturing PMI. Tomorrow its building approvals, Wednesday the service sector PMI, Thursday retail sales and the trade balance, and Friday the construction PMI.

Japan, China (HSBC), the eurozone, UK and US will also release PMI numbers today and Wednesday.

In Europe we’ll see a flash estimate of the eurozone’s February CPI tonight ahead of an historic ECB meeting on Thursday, which should signal the beginning of eurozone QE. The Bank of England will also meet on Thursday, and desperately discuss what can be done to save the nation. Only one win out of four games, and that against Scotland? Brittania is on its knees.

Aside from PMIs the US will see construction spending and personal income and spending tonight, vehicle sales on Tuesday, the Fed Beige Book on Wednesday, chain store sales and factory orders on Thursday and the trade balance on Friday. It’s the first week of the month so that also means jobs numbers, with ADP’s private sector report out on Wednesday and the all-important non-farm payrolls report on Friday.

On the local stock front, the result season is effectively over in terms of the larger caps, but March is the month of ex-dividends. A vast number of stocks in the index will go ex-div during the month, acting as a natural dampener on the index measure.

Rudi will appear on Sky Business 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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