The Monday Report

This story features BANK OF QUEENSLAND LIMITED, and other companies. For more info SHARE ANALYSIS: BOQ

By Greg Peel

On Friday night Wall Street finally decided the possibility of a government shut-down really was something to be concerned about. The market has been strong ahead of the earnings season starting this week and it was time to pull back some positions. The Administration and Republican-led Congress had been at loggerheads over budget cuts and by Friday's session it really did look like no resolution would be achieved and public service workers would be laid off.

In the end there was a literal eleventh hour reprieve ahead of the midnight deadline as a deal was temporarily agreed upon to provide government funding through to September, allowing more time to argue over budget cuts. But no deal had been reached when Wall Street closed at 4pm. The market had opened strongly, with the Dow up 40 points, but by 3pm a steady decline saw the Dow down 90 points before buyers re-emerged. As to whether the buyers believed a resolution would be reached, or were just looking for bargains, is by the by. The Dow closed down 29 points or 0.2% while the S&P lost 0.4% to 1328.

The VIX volatility index popped late in the session, jumping quickly from 17 to over 18.5 before settling back to just under 18 on the close. But the real hit came in the US dollar. As the world contemplated a US government in shut-down for the first time in 15 years, the dollar index was sold down 0.9% to 74.86.

The dollar's drop was a red rag to the commodity bulls. Gold jumped 1% or US$16.70 to US$1475.00/oz. Silver jumped 3% to US$40.93/oz. Brent oil leapt US$3.98 to US$126.65/bbl and West Texas followed with a US$2.75 rise to US$112.79/bbl.

Base metals were up 1-2% across the board in London, having closed at 2.30pm New York time, while the Aussie dollar surged ahead once more, adding a full cent to US$1.0563.

Despite commodity price strength, the SPI Overnight finished down 11 points or 0.2%. It's somewhat academic anyway given the last minute US budget resolution and traders should thus return to focusing in US first quarter results. Dow component Alcoa reports tonight to provide what is considered the official start to the season, albeit it will be next week before the season really begins to hot up.

The question for Australia this week will be whether the oil price is now going to remain above US$125 and the Aussie above US$1.05. Although providing a level of offset, both are a drag on earnings growth.

Today in Australia sees February lending finance released ahead of the results of the monthly NAB business survey on Tuesday. Wednesday brings the Westpac consumer confidence survey and Thursday vehicle sales.

It's a busy week for data in the US starting with the trade balance and monthly budget on Tuesday night, followed by retail sales, business inventories and the Fed Beige Book on Wednesday. On Thursday it's the PPI, and Friday brings the CPI, industrial production, fortnightly consumer sentiment and the Empire State manufacturing index.

The US Treasury will auction US$66bn of paper this week, via three-years on Tuesday, ten-years on Wednesday and thirty-years on Thursday. Those auctions might have been interesting if there had been no budget reprieve.

It will be a big day for China on Friday with the monthly release of inflation data, industrial production and retail sales. Over the weekend China released its trade balance to March which revealed a record level of imports – above US$400bn for the first time. Surging prices for commodities such as iron ore and soy beans were blamed, along with the growing Chinese middle class penchant for imported cars. At just over US$1bn, China's quarterly trade deficit was its first since 2004.

While economists still expect China to net a trade surplus for the year, a smaller surplus takes some pressure off Beijing to revalue its currency in a hurry. Friday's inflation data will nevertheless be crucial to monetary policy, with economists expecting a rise in the CPI to 5.2% from 4.9%.

On the local stock front, we see the first of the off-season bank results with Bank of Queensland ((BOQ)) reporting its half-year on Thursday. We also kick off the quarterly production reporting season for the resource sector this week, featuring Energy Resources of Australia ((ERA)) on Tuesday, Rio Tinto ((RIO)) on Wednesday and Coal & Allied ((CNA)) and OZ Minerals ((OZL)) on Thursday. ERA will also hold its AGM on Wednesday.

Rudi should be appearing on Lunch Money on Sky Business this week, Thursday at noon.

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

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