The Monday Report

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By Greg Peel

Stampede

God was in His heaven and all was right with the world on Friday in Australia, for some reason, as the ASX200 soared 1.5%. Fair enough, there is a growing belief in the market, despite analysts being unconvinced, that both oil and iron ore have seen their nadirs and are headed back to more comfortable levels. A 2.4% rally for materials and 2.7% for energy on Friday is testament.

But the banks had been soggy all week, yet were highly sought after on Friday. Yield stocks have been on the nose, but were fought over. Supermarkets had taken a beating during the week, but were among the go-to stocks. There was likely a good deal of short covering involved, and perhaps word from the government it will not be tampering with super had an impact, but at the end of the day the index has only returned from whence it had come.

A three-month chart of the ASX200 looks like a saw blade, but very much within a fixed range. Since early February the market has gone nowhere.

Greek Stand-Off

The EU finance ministers were all very annoyed with Greece on Friday night, after the government failed to come up with any agenda for reform as requested. Everyone is losing patience. But in terms of action, there appears to be nothing planned, other than to tell Alexis Tsipras he’s a very naughty boy.

The ECB has given Greece enough pocket change to keep ticking over for a little while, but soon the country will run out of money. No one, on either side, appears prepared to make the big decision – Grexit – and all we can assume is that the saga will go on, and on.

Endurable

Friday night on Wall Street was a tale of strong earnings results on the one hand, and weak economic data on the other. The Dow closed up 21 points or 0.1%, the S&P regained its previous all-time high of 2117 with a 0.2% gain, and the Nasdaq pushed further into all-time high territory with a 0.7% rise, thanks to solid gains from tech stocks.

Having reported in Thursday night’s aftermarket, Amazon jumped 14% on Friday night, Microsoft 10% and Google 3%. There is a certain irony that all three are survivors from the tech wreck of 2000, and now considered “old tech”.

US new durable goods orders, on the other hand, disappointed. While March showed a 4% increase, it was mostly down to lumpy aeroplane and military orders. Take these out, and orders fell 0.5%. Economists are forecasting a 1.0% result for the first estimate of March quarter GDP, due on Wednesday night, down from 2.2% in December.

But Wall Street is trading at fresh highs. Why? Because a weaker US economy means a less trigger-happy Fed, because the weather had a lot to do with a weak first quarter, just like 2014, and because there’s really nowhere much else to put your money. Not when the ten-year Treasury yield is 1.92% and below the inflation rate.

The FOMC will meet this week, so the usual endless discussion with regard Fed policy will roll on.

Iron Ore Surge

The iron ore rebound became supercharged on Friday, with the metal surging US$3.20 or 6% to US$57.00/t. Again, one might assume a bit of short-covering in the futures contract. It might be good news, but the price really needs to get back up into the sixties before the smaller miners are even close to a return to positive cash flow. This is not what analysts are forecasting.

Big jumps in overseas trade for Australia’s big miners on Friday night should ensure a positive session on Bridge Street today, and indeed the SPI Overnight closed up 24 points or 0.4% on Saturday morning. We’re still about 100 points shy of the magical 6000, nonetheless.

Base metals, too, suddenly came alive on Friday night, and once again we might point to short-covering. The hot topic on the LME floor is this week’s Fed meeting, so there may have been some square-up on Friday, aided by a 0.5% fall in the US dollar index to 96.86 on the back of the weak durable goods numbers.

Copper and zinc jumped 1%, aluminium, lead and tin rose 2%, and nickel leapt 4%.

Brent crude was stronger on Friday night, rising US73c to a new 2015 high of US$65.46/bbl, but it looked like a bit of profit-taking was underway on the Nymex. Despite rising tensions in Yemen and another reported drop in the US rig count, West Texas crude fell US$2.18 to US$55.26/bbl.

Investors appear to be losing patience with gold. The weak durable goods numbers should add to expectations of a later rather than sooner Fed rate rise, as the lower US dollar suggests, yet gold fell US$13.30 to US$1180.40/oz. Either the gold bugs are just worried about what the Fed might come up with this week or the failure of the metal to breach 1200 has become too much of a frustration.

On the Australian monetary policy front, technicians are suggesting the Aussie might break out of its trading range to the upside, which would have Glenn Stevens pulling at his hair. What? Oh. The Aussie has jumped 0.5% on greenback weakness to US$0.7822.

The Week Ahead

Wednesday night provides for a double-whammy of both the first estimate of US March quarter GDP and a new Fed policy statement. These will be the feature events.

Otherwise, the US also sees Case-Shiller house prices, Conference Board consumer confidence and the Richmond Fed activity index tomorrow night, pending home sales on Wednesday, personal income & spending and the Chicago PMI on Thursday, and construction spending, vehicle sales, and the fortnightly Michigan Uni consumer sentiment survey on Friday.

Friday is the first of the month, hence manufacturing PMIs are due across the globe. Germany and other parts of Europe, and China, are closed on Friday for May Day so the eurozone PMI and HSBC’s China PMI will be delayed till next week.

Regarding holidays, the Kiwis are taking the Anzac Day long weekend we no longer get today and Japan is closed on Wednesday.

The UK will release its first estimate of March quarter GDP tomorrow night. The eurozone will be hoping for QE-led improvement when a flash estimate of CPI is released on Thursday.

Glenn Stevens will make a speech tomorrow, ahead of Australian private sector credit numbers on Thursday and the March quarter PPI on Friday, along with house prices and the manufacturing PMI.

On the local stock front, the week is choc-o-block with ongoing resource sector production reports. Among those, Atlas Iron ((AGO)) will presumably tell us how much it has not been producing today while Origin Energy ((ORG)) will be updating the performance of APLNG on Thursday.

We’ll also see non-resource sector quarterly reports from others over the week, including Mirvac ((MGR)), while Wesfarmers ((WES)) will post its March quarter sales numbers on Wednesday.

Rudi will appear on Sky Business on Wednesday at 5.30pm and on Thursday at noon. Rudi will host Your Money, Your Call Equities on Wednesday, 8-9pm.
 

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

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