The Monday Report

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This story features QBE INSURANCE GROUP LIMITED.
For more info SHARE ANALYSIS: QBE
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

It was manufacturing purchasing managers' index day across the globe on Friday, kicking off in Australia. The strong Aussie was blamed for sending the local PMI down to 47.9 in March after February's 51.1 had marked the first expansionary result in many months.

Despite monetary policy measures, China's official PMI rose to 53.4 from 52.2. Chinese results are always a double-edged sword as while the world might be relieved China is not heading for contraction, the result does suggest more tightening. The independent HSBC number was less expansionary however, rising to 51.8 from 51.7.

All of the UK, eurozone and US have been posting very strong rates of growth in the last couple of months, and it was the same again in March. However in each case, the March rates of growth showed slight dips. The UK saw a fall to 57.1 from 60.9, the eurozone to 57.5 (59.0) and the US to 61.2 (61.4).

The benign US result meant Wall Street could focus solely on the March jobs number, which came in at an increase of 217,000. Private sector jobs rose 230,000 compared to a 185,000 expectation, and the February and March results mark the first time in five years private jobs growth has been above 200,000 per month in two consecutive months. The solid result also meant the unemployment rate fell to 8.8% from 8.9% in February when economists had expected a tick back up to 9.0%.

The Dow jumped 100 points in the morning to above the February high, but there it met selling and finally drifted down in the afternoon. At the close the Dow was up 56 points or 0.5%, while the S&P gained 0.5% to 1332. The S&P did not make it into new-high territory.

With the battle for Libya looking each day like it will be a more extensive operation (Obama had originally suggested “days not weeks” but the days are adding up), oil continues its upward push. Brent rose US$1.34 to US$118.70/bbl on Friday night.

“Inflation” will be the word for April, and oil isn't helping. Ben Bernanke maintains that commodity price hikes will prove “transitory” and on Friday he received support from FOMC member William Dudley from New York. Dudley has come out in what amounts to a rebuttal of the four hawks on the committee who aired their rate rise opinions last week, suggesting that falling unemployment showed QE2 was working. But he then pointed to housing market weakness and geopolitical issues as reason for concern over ongoing economic recovery.

Those comments helped Wall Street strength on Friday, and fears of a new-quarter drop after late-quarter window dressing proved unfounded. Dudley's comments also put the brakes on the US dollar, and it fell 0.25% to 75.82 on its index by the close despite having been higher on the jobs number earlier on. Rate rises are expected from the ECB and possibly the Bank of England this Thursday night, which would put more pressure on the dollar index.

Base metals and gold sold off early but recovered somewhat when the US dollar fell. Copper finished down 1% in a mixed bag of movements while gold lost US$4.40 to US$1428.90/oz. The Aussie was up yet again, by 0.4% to US$1.0386.

The SPI Overnight rose 33 points or 0.7%.

After a week of FOMC member public debate, the world will be hanging on to every word of the speech Ben Bernanke is due to make tonight. At this stage, cases have been made for four different possible policy moves between now and the scheduled end of QE2 in June. QE2 could either be withdrawn early, allowed to expire as planned, allowed to expire but interest payments and maturing assets to be reinvested (call it QE2.5), or QE3 could be implemented. The funds rate could begin to rise in the second half or remain unchanged. If I was having a bet, I'd favour QE2.5 and no rate rise in 2011.

The US services PMI will be released on Tuesday, along with what will by then probably be a redundant set of Fed minutes from the earlier policy meeting. Thursday sees chain store sales and consumer credit, and Friday wholesale trade, in what is a quieter week for US data.

Australia's services PMI is released today, along with the monthly ANZ jobs ads survey and TD Securities inflation gauge. The February trade balance is out tomorrow, but it is pre-Japanese quake and US$1.03 Aussie, while the RBA will make a “rate decision”. That decision will be to remain on hold, but Glenn Stevens' commentary on recent events will be of interest.

On Wednesday it's the construction PMI and housing finance, and on Thursday it's unemployment.

As noted, the ECB and BoE will announce policy decisions on Thursday as will the Bank of Japan, which is now in stimulus mode.

As the local AGM season rolls on the highlight this week will be QBE Insurance ((QBE)) tomorrow.

Note that Australia's reversion to standard time over the weekend means the NYSE will now close at 6am Sydney time through to October.

Rudi will be appearing on Lunch Money on Thursday at noon and I will be on Business View on Friday at 2pm, both on Sky Business.

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

Click to view our Glossary of Financial Terms