The Monday Report

This story features PANORAMIC RESOURCES LIMITED, and other companies. For more info SHARE ANALYSIS: PAN

By Greg Peel

Stocks rose in the US on Friday as Wall Street became more confident that a deal would be achieved in Cyprus that would not imply an ominous precedent for the rest of the eurozone. There were no economic releases so despite a couple of positive out-of-season profit reports, including that of Nike, an easing of euro-fear was the main driver after a volatile and ultimately down-week prompted by the Cyprus deposit tax bombshell dropped last weekend. The Dow rose 90 points or 0.6%, the S&P gained 0.7% to 1556 — 11 points shy of the peak — and the Nasdaq added 0.7%.

Wall Street may be confident, but as we speak the prime minister of Cyprus is in an emergency meeting in Brussels to nut out a compromise by, presumably, sometime later this morning Sydney time. If he can’t he says he will resign. Tonight marks the deadline at which the ECB will withdraw emergency funding from Cyprus’ banks unless a bail-out deal is forthcoming.

Wall Street is justifiably confident, given we have been down this path so many times. The politicians in Europe always find the most treacherous path to take towards some solution in these bail-out situations, dither and dally and finally concede at the eleventh hour. While the threat is that Cyprus would have to leave the eurozone if it does not agree to bail-out terms, the Greek episode has shown that leading members such as Germany are determined to keep the currency bloc intact. The ECB has declared it will “do all it can to save the euro”. Greece is small in the region economically, and Cyprus is but a blip, but let one member go and it would not be long before the trickle potentially turned into a flood.

The Cyprus deposit tax was ill-conceived and a PR disaster. However any bail-out deal agreed upon will still need to include some sort of deposit tax. There’s no point in going down the austerity path as Cyprus’ economy is not the problem. The problem lies with the Cypriote banking system which is eight times the size of the economy. Budget cuts and other fiscal measures would not save the Cypriote banks which, among other things, were funding attractive bank deposit rates with Greek sovereign bonds. Last year’s haircuts on those bonds were somewhat problematic.

Speculation is that deposits in Cypriote bank of less than E100,000 will be protected, and deposits of greater amounts will be hit with a tax. Maybe even up to 20% from the original 10% limit suggested. It would be a severe blow for foreign, mostly Russian, depositors. But if Cyprus were forced to leave the euro a massive currency devaluation would follow, providing the Russians with a potentially even greater write down of their investments.

We now wait. What we can be pretty sure of is that a resolution in Cyprus of a non euro-threatening nature will provide the spark to take the S&P 500 through its 2007 all-time high. The Dow is already well past, but the Dow is not the bellwether indicator for Wall Street. A breach for the S&P will provide a very strong technical signal. It would also help Australia recover from the 3% pullback the market has suffered since the earlier peak.

Bail-out confidence was also reflected in the forex markets on Friday, with the euro rising to send the US dollar index down 0.5% to 82.37. This provided a fillip for commodities prices, hence all base metals rose around 1%, Brent crude rose US19c to US$107.66/bbl and West Texas rose US$1.35 to US$93.80/bbl. Spot iron ore rose US$1.10 to US$135.30/t.

Gold went the other way, falling US$7.10 to US$1608.40/oz, on reduced sovereign fear. The Aussie is relatively steady at US$1.0445.

The SPI Overnight gained 24 points or 0.5%.

It’s a shortened trading week across Western markets this week with Good Friday approaching. A fair slice of economic data releases will be crammed in.

Housing again features in the US this week among other data, with the Chicago national activity index out tonight, new home sales, durable goods and the Richmond Fed manufacturing index on Tuesday, and pending home sales on Wednesday. On Thursday it’s the Chicago PMI and the “final” revision of the December quarter GDP. I say “final” because it can be further revised at the release of the first estimate of the March quarter GDP.

Despite markets being closed in the US on Friday, banks are open and releases will be posted for personal income and spending data and the Michigan Uni consumer sentiment gauge.

The UK will also revise its December quarter GDP on Wednesday, China will release monthly industrial profits data on Thursday and Japan will provide somewhat of a data dump on Friday including its manufacturing PMI and industrial production numbers.

The RBA will offer a financial stability review on Wednesday and Thursday sees releases for private sector credit and the TD Securities monthly inflation gauge.

This week locally will also feature some late season earnings reports, including full-years from Endeavour Mining ((EVR)), Ivanhoe Australia ((IVA)), Mincor ((MCR)) and Panoramic Resources ((PAN)) and interims from Peet ((PPC)), Regis Resources ((RRL)) and Sandfire Resources ((SFR)) today, a full-year from Beadell Resources ((BDR)) on Wednesday, and a full-year from Ampella Mining ((AMX)) and an interim from Nufarm ((NUF)) on Thursday.

Wednesday will see the expiry of March quarter stock options on the ASX, which can often encourage some stock-specific volatility. Thursday sees a full session on the ASX ahead of Good Friday, but there’ll be tumbleweeds blowing down Bridge Street from lunchtime.

Rudi will appear on Sky Business today at 11.15am and at 5.30pm on Tuesday, but will not make his regular appearances on Thursday due to holiday scheduling.

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.

Click to view our Glossary of Financial Terms