The Monday Report

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By Greg Peel

Elusive

5699.2 – that’s the level reached by the ASX200 on Friday in what was possibly an attempt at a bit of window-dressing for the end of the month. The index wobbled its way to a 0.5% gain in the session and spiked suddenly right at the death.

Healthcare led the charge with a 2.3% increase thanks to a well-received profit result from ResMed ((RMD)), which saw its shares rise 6.4%. Utilities (+1.6%) was the other mover of note in a session that saw materials and energy the only two sectors to close in the red and more modest gains from other sectors.

With the SPI Overnight closing down 12 points on Saturday morning, the 5700 level, which has proven the bridge too far since May, may again prove elusive today ahead of a solid raft of economic data releases.

On the topic of data, Beijing released its official PMI numbers on Saturday and there was once again disappointment. The manufacturing PMI ground to a halt at 50.0, down from 50.2 in June and falling short of 50.2 expectations. The weak result has nevertheless fired up expectations of further stimulus. Indeed, some believe this time Beijing will not fiddle about, but come in all guns blazing.

It should be noted, however, that China’s manufacturing sector has been quietly diminishing in recent years as a proportion of output, while the services sector continues to grow. Beijing’s service sector PMI came in at 53.9, up from 53.8.

Wage Angst

These results were not yet known when the Dow opened down 50-odd points from the bell on Friday night, largely due to weak earnings results from Big Oil stalwarts Exxon and Chevron. While it might be a no brainer that lower oil prices were to blame, both still missed expectations and each fell 4-5%.

It didn’t help that they reported on a day when oil prices dropped sharply again, thanks to another increase in the US weekly rig count.

But while the US energy sector may be proving a drag on the US market, the main focus of attention on Friday night was the release of the US June quarter wage cost index. The Labor Department started keeping track back in the eighties and this is the first time since a number as low as 0.2% growth has been recorded in a quarter. Even the snowbound March quarter saw 0.7%, and economists had forecast 0.6% for June.

The US may have been adding new jobs at a solid pace this past year or so but each positive monthly result has been met with concern over a lack of corresponding wage growth. This implies plenty of slack still remains to be taken up in the US labour market, and that there is absolutely no wage-based pressure on inflation. And that implies, many suggest, that the Fed will thus not raise in September.

(Unless they’ve already made that decision, which is my theory.)

The US bond market clearly thinks not, given a 6 basis point fall to 2.20% on Friday night for the ten-year yield. The ten-year has never really shaken off the lower levels it reach at the height of the latest Greek crisis, so it’s a long way from the 2.50% level seen a couple of months ago when Fed hike speculation was at a peak.

The US dollar was also weaker on the back of the wage cost number, falling 0.3% to 97.19 on its index.

The US stock market nevertheless turned around sharply from its early plunge and rallied back to be into the green at lunchtime. If this was also end-of-month window-dressing it didn’t have sufficient oomph, given the indices drifted back down again in the afternoon. The Nasdaq managed to close flat on the day but the Dow closed down 56 points or 0.3% and the S&P lost 0.2% to 2103.

For the S&P500, 2100 is proving a similar stumbling block of late to 5700 locally.

Commodities

As noted, another tick up in the US weekly rig count despite lower prices sent oil south again on Friday night, with West Texas dropping US$1.65 to US$46.81/bbl and Brent falling US$1.47 to US$51.85/bbl.

Nor did the lower greenback provide much help for base metal prices. Nickel managed a 0.5% gain but copper lost 0.7% and aluminium and zinc each saw 1.6% falls.

Iron ore continues to have difficulty overcoming the gravitational pull of the 50 mark, falling back US$1.70 to US$52.90/t.

The weak US wage data and lower greenback were enough to send gold up US$7.00 to US$1095.20/oz, while the greenback also helped the Aussie to a 0.2% gain the US$0.7307.

As noted, the SPI Overnight closed down 12 points or 0.2%.

The Week Ahead

Local economic data come thick and fast this week, beginning today with all of the ANZ job ads number, the TD Securities inflation gauge, the RP Data house price index and HIA new home sales. Today also sees the local July manufacturing PMI, along with equivalent readings from Japan and China (Caixin, replacing HSBC) today and the eurozone, UK and US tonight.

Tomorrow locally sees retail sales and trade numbers and the RBA will meet and leave its rate on hold. Wednesday it’s the services PMI, along with everyone else as above, Thursday it’s the jobs numbers and Friday it’s the construction PMI, housing finance and the RBA quarterly Statement on Monetary Policy.

On top of PMIs, the US sees construction spending, personal income & spending and vehicle sales tonight, factory orders on Tuesday and the trade balance and ADP private sector jobs number on Wednesday. Thursday it’s chain store sales and Friday the all-important non-farm payrolls report.

The Banks of both England and Japan will hold policy meetings this week but nothing untoward is anticipated.

The first earnings reports of the local season have begun to trickle in and the highlights from a handful of reports this week will be Suncorp ((SUN)) tomorrow and Rio Tinto ((RIO)) on Thursday.

FNArena will later in the week launch the August 2015 Reporting Season Monitor, which each day will report on company results and subsequent target price and ratings changes from brokers and build into a comprehensive database by month’s end.

Rudi will appear on Sky Business on Thursday at noon. He will be presenting at the AIA National Conference on the Gold Coast on Tuesday morning. Sun is shining brightly over there…
 

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

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