The Monday Report

This story features ANZ GROUP HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: ANZ

By Greg Peel

Carnage

I suggested on Friday morning that we might be headed back down to the bottom of the range, although I didn’t suspect that might happen in one session. At 5474, the ASX200 is back at the bottom of its range since June, with 5700 at the top, if we discount one quick foray to 5422 at the height of the Greece/China scare.

The worst day in six years on Bridge Street on Friday can mostly be attributed to ANZ Bank ((ANZ)), which having placed $2.5bn of its $3bn new capital raising with institutions by Friday morning at a 5% discount, saw its shares plunge 7% as soon as the trading halt was lifted.

The response to the ANZ raising is in contrast to the earlier National Bank ((NAB)) raising, which was well received by the market. But NAB’s raising was about spinning off its UK business plus some extra to cover new “too big to fail” capital requirements, while ANZ’s raising simply covers new mortgage requirements and is still not enough to cover TBTF capital. NAB’s raising came in the form of a rights issue, which offers new discounted capital to existing shareholders thus reducing the dilution impact. ANZ made a placement of new capital, maximising dilution for existing shareholders.

The bottom line is the bank index was slammed 3.1% on Friday, and given the Big Four together represent around a quarter of the total ASX200 market cap, that was a big impact on the index alone. But materials also came in for a sudden hammering, down 2.8%, and elsewhere it was just a matter of selling everything. Result season seemed not to matter, other than maybe the market now fears more “misses” than “beats”.

ANZ will not be very popular with Commonwealth Bank ((CBA)), which has been long tipped to announce a capital raising at its result release on Wednesday. CBA’s smaller rival’s pre-emptive strike sunk all boats, thus if CBA does have a raising lined up, it will be at lower price.

September Looms

As far as US jobs reports go, Friday night’s was about as uneventful as they get. The July non-farm payrolls report showed 215,000 new jobs added, smack on expectation, and the unemployment rate was unchanged at 5.3%.

There is nothing here, consensus suggested on Friday night, to stop the Fed raising in September. The data would actually have to be “bad”, rather than simply not “good”, to provide reason for pause, most believe. There’s one more jobs report to go before the September meeting and some various inflation measures, but barring some unexpected turn in fortune, Wall Street is starting to lock in September.

It’s arguably why the Dow has seen its worst run since the 2011 debt ceiling crisis, falling seven sessions in a row. The Dow fell 46 points or 0.3% on Friday night, flattered by an announced stake taken in American Express by an investment company. The S&P fell 0.3% to 2077 and the Nasdaq lost 0.3%.

Looking outside US stocks, one would be forgiven for believing the markets in general are not pricing in a September rate rise. The US dollar index fell 0.3% to 97.56 and the US ten-year bond yield fell 6 basis points to 2.16%. However the dollar index is still up solidly over a month, and the US ten-year yield is not necessarily the best benchmark of Fed funds rate prediction.

While the ten-year yield fell on Friday night, the five year yield rose slightly and the two-year yield rose more substantially. The thirty-year yield fell more than the ten. This implies a flattening of the yield curve, and thus “normalisation” of rates. When the Fed makes its first move it is not essentially “tightening” monetary policy, which occurs when a central bank lifts its rate above the “normal” level to slow an economy down, it is “normalising” policy, suggesting the economy is starting to fare well enough on its own.

The Fed is keen to get the ball rolling, if for no other reason than to build in a level of policy buffer, or “insurance”, against some new disaster. There’s nowhere to go from zero, and the Fed really does not want to have to go back down the whole QE path all over again.

Commodities

There was not much to read from the US jobs numbers for LME traders on Friday night, but a 1.4% drop in Germany’s June industrial production when a 0.3% gain was expected was enough to keep the mood fairly sour. All base metal prices fell somewhat, bar lead which managed a 0.9% gain.

Singapore celebrated 50 years of independence on Friday, closing exchanges and thus iron ore trading. Iron ore is unchanged at US$56.30/t.

Friday is US oil rig count in the US and once again the figure rose. While six rigs is hardly end-of-world stuff, the only support oil prices can hope for at this stage is from US production reduction. West Texas duly fell US$1.00 to US$43.80/bbl, its lowest level since March, and Brent fell US$1.13 to US$48.59/bbl, its lowest level since January.

Gold rose US$4.30 to US$1093.80/oz.

Despite the shellacking in the local stock market, the Aussie rose steadily all Friday night to be up a percent at US$0.7419.

The SPI Overnight closed down 2 points on Saturday morning.

China

China’s July trade data, released over the weekend, were not exactly flash.

Having risen 2.8% in June, exports fell 8.3%. Imports fell 6.1% in June and 8.1% in July (all year-on-year figures). The July inflation data were even more depressing. While the July CPI rose to 1.6% annual from June 1.4%, the PPI, representing wholesale inflation, fell 5.4% compared to 4.8% in June.

That’s the biggest monthly drop in the PPI in six years, following over three years of continuous falls.

But it all just adds to expectation that Beijing will ramp up the stimulus, and increases expectation they won’t muck around this time.

The Week Ahead

The local earnings season ramps up in earnest this week, ahead of hitting full pace next week. There are too many reporters now to highlight on a weekly basis, so please refer to the FNArena Calendar (link below).

Today’s highlights include Ansell ((ANN)), Bendigo & Adelaide Bank ((BEN)) and JB Hi-Fi ((JBH)).

Local data this week include the NAB business confidence survey tomorrow, and the Westpac consumer confidence survey on Wednesday along with the June quarter wage price index.

Following on from the weekend’s data releases, Beijing will publish July industrial production, retail sales and fixed asset investment numbers on Wednesday.

US data highlights will come at the end of the week with retail sales and business inventories on Thursday and industrial production, consumer sentiment and the PPI on Friday.

The eurozone will release its first estimate of June quarter GDP on Friday.

Rudi will appear on Sky Business on Wednesday at 5.30pm.
 

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

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

Click to view our Glossary of Financial Terms