The Monday Report

This story features JAMES HARDIE INDUSTRIES PLC, and other companies. For more info SHARE ANALYSIS: JHX

By Greg Peel

Recovery

Friday ended a volatile but ultimately positive week for the Australian stock market on a strong note, with the ASX200 pushing towards the technically significant 5750 level. Thanks to a boost to new all-time highs on Wall Street, everything that was on the nose on Thursday was once again sought after on Friday, including a turnaround for materials despite another slip in the iron ore price.

Energy was the only sector to close in the red, down 0.7%.

For some reason there is talk from Canberra of holding a parliamentary enquiry into the iron ore industry. As to how that possibility impacts on mining stocks we’ll have to see.

Weakness

Volatility also continued in the US bond market on Friday night. After several sessions of inexplicable selling panic, the market saw renewed buying on Friday night to take the benchmark US ten-year yield down 10 basis points to 2.14%.

This time the market was moving as one might expect, given a set of weak US data releases on the day.

Michigan Uni’s fortnightly gauge of consumer sentiment plunged to a seven-month low 88.6 from 94.5 at the end of April. Economists had forecast 94.5, so many commentators are scratching their heads as to why the US consumer is so downbeat.

US industrial production fell 0.3% in April to mark five month decline. A fall of 0.2% was forecast. The Empire State activity index did manage to rise to plus 3.1 from minus 1.2 last month, but economists had expected 5.5.

Hence bond yields fell and the US dollar followed suit. The dollar index is down another 0.1% to 93.23.

The weak data led to initial weakness for the US stock indices but having seen a possible break-up in the S&P500 the day before, the buyers were quick to respond. A choppy session saw the Dow close up 20 points or 0.1%, the S&P gain 0.1% to 1223 and the Nasdaq close as good as flat.

Interesting week for Greece

It has been revealed that the Greek prime minister had prepared for a default on the country’s debt to the IMF, even writing to Christine Lagarde to inform her there was no money left to make last week’s E750m payment, until someone pointed out a slightly ironic option still open to the government.

So it was Greece was able to make its IMF repayment by drawing down on emergency funds available to it under normal procedure from, whaddya know, the IMF. Meanwhile, while the ECB has kept a trickle of funds flowing to Greece’s banks to avoid a run, the central bank has in turn banned those banks from buying Greek government bonds and thereby lending the government that money. Tspiras has now rifled through every coat pocket and raided the back of the couch, so this time he really does have nothing left for which to make subsequent repayments to the IMF.

Greece’s negotiators are now hoping to reach a deal with its creditors by the end of this week.

And so it goes on.

Quiet Commodities

The iron ore price continues to trickle back, down US20c on Friday to US$61.00/t.

Activity in all commodity markets was muted on Friday night. On the LME, base metal prices all saw mixed but small moves, while in the oil markets, West Texas rose US21c to US$59.91/bbl and Brent was flat at US$66.57/bbl.

Gold fell US$2.40 to US$1221.10/oz.

The Aussie dollar continues to slip back following last week’s RBA-spurred short-covering rally. Despite another dip in the US dollar index, the Aussie is down 0.6% to US$0.8033.

The Week Ahead

The SPI Overnight closed up 2 points.

The Fed will release the minutes of its last policy meeting on Wednesday which will no doubt prompt the usual search for any subtle hints on exactly when the central bank may begin raising rates. As the weak US data continue to roll in, those arguing “not before 2016” are becoming increasingly confident.

It is likely the minutes will only reinforce that the Fed is simply data-dependent and to that end, the data releases continue to roll in this week.

Tonight sees the US housing sentiment index, tomorrow housing starts, Wednesday the minutes and Thursday existing home sales, the Chicago Fed national activity index, the Philadelphia Fed activity index, the Conference Board’s leading economic index and a flash estimate of May manufacturing PMI. Friday brings the CPI.

The PMI flashers will all be out on Thursday, including Japan, China (HSBC) and the eurozone.

Beijing will announce monthly property prices today while in Europe, this week’s data include the eurozone CPI and trade balance along with both the ZEW investor and IFO business sentiment surveys.

Westpac’s monthly consumer confidence gauge is the highlight of Australia’s economic releases this week but the RBA will be squarely in the frame. Deputy governor Philip Lowe will deliver a speech today while tomorrow the minutes of the May policy meeting will be released.

Has the central bank really now completed its easing cycle? The market will be scouring the minutes for clues.

On the local stock front, DuluxGroup ((DLX)) releases its half-year result today and James Hardie ((JHX)) provides quarterly numbers on Thursday. The AGMs roll on, including those of Iluka Resources ((ILU)) on Wednesday and PanAust ((PNA)), subject to takeover, on Friday.

Investor slash strategy days are becoming increasing popular among Australian corporates and can be largely grouped in with an increasing number of simple quarterly reports. How long before we go down the US path of quarterly reporting? Companies holding such “days” this week include Boral ((BLD)), Wesfarmers ((WES)) and Graincorp ((GNC)) on Wednesday, and Woodside Petroleum ((WPL)) on Thursday.

Rudi will not make any appearances on Sky Business this week. He's spending the week in ice-cold Canberra and will present to the local chapter of the Australian Technical Analysts' Association (ATAA) on Tuesday. Weekly Insights will return next week.
 

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

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