The Monday Report

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By Greg Peel

Housing Peak?

The value of Australian new housing loans fell by 1.0% in February, it was revealed on Friday, and the value of investor loans in particular fell by 3.5%. While investor loans are still up 10% year on year, the February stall may just be the first sign that warnings from the RBA and APRA with regard possible mortgage restrictions may finally be having an effect.

If this is the case, then one assumes the RBA no longer has an excuse not to cut the cash rate, perhaps more than once. At least that’s the way the stock market appeared to read it on Friday. It was green on screen for all bar materials in a solid session not inspired by any particular Wall Street lead.

News that China’s CPI was flat in March at an annual 1.4%, and that the PPI improved but only to minus 4.6% annual from February’s minus 4.8%, suggests that Beijing’s incremental easing measures to date have not been enough to reinvigorate growth. Given the PBoC has indicated it has room to move if necessary, these inflation numbers are incentive alone. On Wednesday Beijing will release China’s March quarter GDP result.

Any further stimulus in China is good news for Australia, albeit no one is expecting the PBoC to conjure up a rebound in iron ore prices. But it is notable that the Shanghai stock market has rallied a full 25% in the space of just one month.

General Excitement

The scene was set for a subdued session on Wall Street on Friday might as traders await this week’s significant earnings releases, and indeed there may have been some angst generated by the Richmond Fed president and FOMC member Jeffrey Lacker, who reiterated his case for a June Fed rate hike. But General Electric stole the show.

Major conglomerate and Dow component GE announced on Friday, ahead of its earnings report, that it would be restructuring its business. The company will sell off real estate assets up front and over a two-year period would sell off its GE Capital business, which is effectively one of America’s biggest “banks”. From the proceeds, GE will return some US$90bn to shareholders, including a US$50bn share buyback and US$35bn in increased dividends out to 2018.

It is the second biggest share buyback in history, by a whisker to Apple’s earlier US$56bn foray.

And speaking of Apple, the new kid on the Dow Jones Industrial Average block, a buzz was created on Wall Street on Friday as the door was opened for orders of the new iWatch, and they sold out immediately.

Apple only managed a 0.4% rally on what did not come as any great surprise to the market, but GE shares jumped 10.8%, helping the Dow along to a 98 point or 0.6% gain, and a recapture of the 18,000 mark. The broad market fell into step, and a 0.5% rally in the S&P meant a recapture of the 2100 mark. The Nasdaq rose 0.4%.

And Wall Street is meant to be terribly worried about potentially weak first quarter earnings, the strong greenback, and a possible June Fed rate rise. Funny way of showing fear.

Fundametals

I pointed out last week that LME traders have begun to focus less on who’s pumping up the QE, or who’s going to go the other way and when, and more on actual demand-supply fundamentals. On Friday night the US dollar index rose another 0.3% to 99.34 but this did not prevent rallies across the base metal spectrum as traders looked to exchange data indicating tighter supply.

Copper and tin rose 0.5% and nickel, lead and zinc all rose 1%. Aluminium remained flat.

Iron ore fell US50c to US$47.30/t.

Oil markets also ignored the stronger greenback in pushing West Texas up US$1.04 to US$51.79/bbl and Brent up US$1.16 to US$58.01/bbl. Fears continue to subside with regard Iran and a possible flood of Iranian oil but Friday is also US rig count day, which showed another fall.

Despite the wild volatility, the oils have posted four consecutive weeks of price gains.

It would seem not all gold traders like to see the metal under US$1200 and so on Friday night what appears to have been a short-covering scramble was sparked when gold jumped US$13.50 to US$1207.30/oz. It is easy to justify gold’s downward drift last week given the ever strengthening US dollar and ongoing talk of a June Fed rate rise, but on Friday the dollar was up again and June was touted as preferable to at least FOMC member, yet gold bounced up.

The Aussie dollar has drifted back 0.2% to US$0.7678.

The SPI Overnight closed up 22 points or 0.4% on Saturday morning.

The Week Ahead

The big banks are the major focus as the US earnings season hots up this week, with the likes of JP Morgan (Dow), Wells Fargo, Bank of America, Citigroup and Goldman Sachs (Dow) on the block. Additional Dow reporters include Johnson & Johnson, Intel, American Express and General Electric.

A data-dependent Fed will also have its work cut out this week assessing retail sales, inventories and the PPI tomorrow night and industrial production, housing sentiment and the Empire State activity index on Wednesday. The Fed will also release its Beige Book on Wednesday.

Thursday it’s housing starts and the Philadelphia Fed activity index, and Friday consumer sentiment and the CPI.

All eyes will be on China this week as trade numbers are released today and industrial production, retail sales and fixed asset investment numbers on Wednesday, along with the March quarter GDP result. Economists are forecasting 7.0% annualised growth, down from 7.3% in the December quarter.

Industrial production numbers will also be in focus in Japan and Europe, and the eurozone will also see trade and inflation data.  The ECB will hold a policy meeting on Wednesday to discuss how QE is faring.

Australia will see the NAB business confidence survey results tomorrow and the Westpac consumer confidence survey on Wednesday. Thursday sees the March jobs numbers, and forecasters see the unemployment rate holding steady at 6.3%.

The resource sector quarterly production report season steps up a gear this week with reporters including Woodside Petroleum ((WPL)), Fortescue Metals ((FMG)), Iluka Resources ((ILU)) and Santos ((STO)).

We are also now entering an AGM season for those companies reporting on a calendar year basis. This week sees meetings for ERA ((ERA)), Woodside and Macquarie Atlas ((MQA)).
 

Rudi will not be making any media appearances this week as he is taking a short break in some place called Belgium.

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

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