The Monday Report

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

By Greg Peel

Resilient

There was every reason to expect profits to be taken on the local bourse on Friday following a very sharp and solid rally for the index over the week, but it was not to be. While there was no great enthusiasm from the buyers early in the session, potential sellers were also thin on the ground.

By day’s end the index posted a mild gain to cap a consistent up-week, led by the banks, which posted a 0.6% gain to offset oil price-inspired weakness in energy (-1.1%). Materials (+0.2%) held up despite another slide in the iron ore price, struggling to fall further from the BHP-driven lows already posted.

Nor does there seem to be a lot of concern at this stage that the Aussie dollar has staged a bit of a comeback. The market had assumed that were the Fed to go ahead with its first rate rise in December, the Aussie must surely fall into the sixties and stay there this time. But that rate rise is now priced in and attention has turned to expectations of a very slow tightening cycle from the US central bank thereafter.

This realisation has sparked selling the US dollar, although downside for the greenback is limited when there is a race to the bottom among other currencies, particularly the euro. Having fallen sharply on Thursday night, Friday night saw the US dollar index bounce back again by 0.7% to 99.63. By rights the Aussie should counter with a fall, but it was up another 0.6% on Saturday morning at US$0.7237.

Clearly the shorts are still being cleared out.

As You Were

The Dow was up as many as 180 points during Wall Street’s session on Friday but the afternoon did bring in the sellers, likely taking the profits Bridge Street seemed content to leave alone after a strong week. In fact it was the best week on Wall Street in almost a year.

But the week before was one of the worst, so over two weeks Wall Street has gone nowhere.

It makes more sense that traders should take profits ahead of this week given Thursday is Thanksgiving in the US, which closes all markets and ensures half-day sessions on either side of the holiday. For many it would simply be a holiday week.

At the closing bell on Friday the Dow was up 91 points or 0.5% while the S&P had gained 0.4% to 2089 and the Nasdaq had risen 0.6%.

Leading the charge on Friday was teen fashion, with apparel retailer Abercrombie & Fitch stunning the market with its earnings result and enjoying a 25% share price hike in response, while Nike announced a 14% increase in dividend and share buy-back to ensure its position as best performer in the Dow over 2015 to date.

The 0.7% rise in the US dollar index came about primarily because of a tale of two central banks. On Friday night ECB president Mario Draghi reaffirmed his commitment to extensive stimulus measures to combat low inflation. Meanwhile, St Louis Fed president James Bullard suggested the US rate of inflation will soon rise to the Fed’s 2% target, further cementing expectations of a December hike.

Commodities

A stronger US dollar is as always, a drag on commodity prices. But right now the currency conversion is not the biggest issue. On Friday night nickel fell over 3% in London to its lowest level since 2003.

That’s lower than the 2008 GFC sell-off. Yet not so long ago nickel was the darling of the base metals thanks to Indonesian export bans. It just goes to show what oversupply will do. Meanwhile, news that a group of Chinese zinc smelters had agreed to lower production next year helped zinc to a 1.5% gain. Similar curtailments have previously been announced by the likes of Glencore and others.

Copper and aluminium would be best served by curtailments as well. They were both down 1% on Friday night.

Iron ore fell US10c to US$45.00/t.

The oils were mixed on small moves, complicated by the rollover of West Texas into the new January delivery front month. The two majors are now aligned on delivery, and a fall for WTI of US15c to US$41.57/bbl was offset by a US21c rise in Brent to US$44.46/bbl.

Gold had jumped ten dollars the night before on a fall in the greenback, so it was back down US$5.30 on Friday night to US$1076.60/oz.

The SPI Overnight closed down 5 points on Saturday morning.

The Week Ahead

As noted, it’s Thanksgiving in the US on Thursday, closing all US markets. The NYSE will close at 1pm on Wednesday and on Friday. From Wednesday lunchtime, Wall Street will quickly be emptied.

There are nevertheless a lot of data releases crammed into the first three days of the week.

Tonight sees existing home sales, the Chicago Fed national activity index and a flash estimate of November manufacturing PMI. The eurozone will also flash tonight, while Japan will wait to tomorrow given a public holiday today. Caixin no longer provides a China flash.

Tuesday in the US sees Case-Shiller house prices, monthly consumer confidence, the Richmond Fed activity index and the first revision of the September quarter GDP result. Economists are expecting an upgrade to a 1.9% annual rate from the initial estimate of 1.5%.

Wednesday brings durable goods, FHFA house prices, new home sales, personal income & spending, fortnightly consumer sentiment and a flash estimate of the services PMI.  And that’s it for the week.

Locally, RBA governor Glenn Stevens will make a speech tomorrow night while attention turns to September quarter data in the lead-up to next week’s GDP result. Wednesday sees construction work done and Thursday private sector capex.

This week brings the last big rush of corporate AGMs before December meetings slow to a trickle. This week’s highlight will no doubt be Woolworths ((WOW)) on Thursday.

TechnologyOne ((TNE)) posts its FY15 result tomorrow and Fisher & Paykal Healthcare ((FPH)) posts its interim on Friday.

Rudi will appear twice on Sky Business on Thursday. First at noon and again from 6.30-7pm.
 

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

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