The Monday Report

This story features ENERGY RESOURCES OF AUSTRALIA LIMITED, and other companies. For more info SHARE ANALYSIS: ERA

By Greg Peel

Ola.

Wall Street was relatively quiet on Friday night ahead of tonight's kick off to the second quarter earnings season, marked by the release of Alcoa's result. The indices bungled along the flatline for most of the session before a typical last-hour buying wave saw the Dow close up 59 points or 0.6%. The S&P gained 0.7% to 1077.

That meant four up-days in a row – a feat which has not been experienced since July last year. Clearly stock markets had become oversold, by many measures, but at this stage one can only suggest so in the short-term. Wall Street has reset by recovering 5% from the lows over the week, and now it's all up to corporate earnings results, and ongoing corporate guidance. While we've seen contrary views expressed of “we've seen the bottom” and of “just a blip before heading to new GFC lows”, there's little point discussing the matter further until it becomes apparent whether Wall Street's earnings forecasts are accurate, or not.

After a few days of solid gains, the euro slipped back a bit on Friday as global attention swung back to the US. The dollar index rose close to half a percent to 84.10, and with the pressure off from euro buying gold was able to re-take US$1200, rising US$12.90 to US$1211.40/oz. The Aussie was flat at US$0.8776.

Oil continued to match the stock market with a US65c gain to US$76.09/bbl, while base metals in London were all slightly stronger. Copper rose over 1%.

Economic data showed that US wholesale inventories rose 0.5% as expected but that wholesale sales fell 0.3% – the first decline in 14 months.

The SPI Overnight rose 8 points or 0.2%.

While US earnings will be drawing attention this week, it will also be a week choc-o-block with economic data releases across the globe.

Of particular interest will be the release of monthly Chinese data on Thursday, including industrial production, retail sales, PPI and CPI. In the days prior, but without specific schedule, house price, money supply and fixed asset investment data are also expected. The highlight will fall on the Thursday with the release of China's second quarter GDP – just two weeks after the end of June.

Has Beijing managed to rein in its economic growth? Steel and bulk mineral spot prices have been falling, and the Baltic Dry Index, which measures cost of shipping and is considered a leading indicator of commodity prices, has been collapsing. Mind you, it's been collapsing for a couple of months now without necessarily sparking a widespread commodity sell-off. The BDI can also be impacted by new ships hitting the oceans – something which obviously has a long lag time. And this weekend has seen the release of China's trade balance, which has blown away expectations.

Following a jump in exports of more than 40%, China's trade surplus has increased 140% over June last year to a new record of US$20bn. Economists had pencilled in only US$15bn. The world has been very concerned that China's growth miracle would hit a speed bump now that its biggest export customer – the EU – is suffering from sovereign debt issues and budget cuts. Well – where's the problem? Did stock markets drop 15% for nothing?

Just how dramatic has been the slowdown in the US recovery? Earnings will tell the tale but it's also a big week for data.

In the US we'll see the monthly trade balance and Treasury budget on Tuesday, and business inventories and retail sales on Wednesday. Wednesday also sees the release of the minutes of the last Fed monetary policy meeting. Thursday it's industrial production along with the PPI, as well as the New York State and Philadelphia Fed manufacturing indices. Friday wraps up with the CPI, long term capital flows and the first Michigan Uni consumer confidence survey for July.

The US Treasury will also auction US$69bn of three-year and ten-year notes and thirty-year bonds over tonight, Tuesday and Wednesday. With the ten-year yield having regained the 3% mark, the stock market will be hoping demand for Treasuries will not be overwhelming.

The UK will release its delayed final revision of its first quarter GDP tonight, in a week that also sees inflation data for all of Japan, the UK and eurozone along with the US. The EU's influential ZEW sentiment index is released on Tuesday. The Bank of Japan will make a rate decision on Thursday, but will not move off 0.1%.

There are some important data releases in Australia as well this week, beginning with housing finance and investment lending numbers today. Tomorrow sees the monthly release of NAB's business conditions and confidence survey, while on Wednesday it's Westpac's consumer confidence survey. Thursday brings Westpac's consumer inflation expectation measure along with June vehicle sales.

On the local stock front, this week marks the beginning of the quarterly round of production reports from the resource sector. Energy Resources of Australia ((ERA)) and Rio Tinto ((RIO)) are the highlights this week.

And today Orica ((ORI)) spin-off DuluxGroup ((DLX)) will make its debut on the market. 

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

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