The Monday Report

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By Greg Peel

Wall Street returned to a familiar theme on Friday night, that of dips attracting buyers. There was a hint of the same on Thursday night, suggesting that the pullback from the highs beginning earlier in the week, in which the sellers for once seemed to have the upper hand, may have run its course for now.

It was also a session that saw considerable variance in the indices. The Dow Jones blue chip average fell by over 90 points from the open, whereas the tech laden Nasdaq saw buying right from the bell. Apple was not leading the charge, but rather after a week of solid selling in the Nasdaq the bargain hunters moved in in force. The S&P 500 rose on a net basis, and as the session played out all three indices continued upward. The Dow finished in the green, up 10 points, while a storming 1.3% rise in the Nasdaq helped push the S&P 500 to a 0.9% gain to 1555.

Early weakness in the Dow was specifically related to some disappointing earnings results among components. IBM had posted a rare miss after the bell on Thursday night and fell 8% in Friday’s session. McDonalds posted a miss on Friday and fell 2%. General Electric reported results roughly in line with expectation, yet the market sold its shares down 4%. On the flipside, Microsoft reported a beat and rose 3%, while non-Dow component Google also posted a solid result and rose 4%. Both tech stocks provided the impetus for the wider Nasdaq.

Adding to the more positive sentiment was a listing debut for Sea World, which jumped 24% from its IPO price. Beyond that, commentators cite the fact 55% of stocks in the S&P 500 pay a dividend in excess of the 1.7% US ten-year bond rate as the reason why buyers are keen despite signs of slowing economies in both the US and China, alongside the basket case that is Europe.

When it comes to yield stocks, the materials sector is rarely in the race. The capitulation in base metal prices continued on Friday, after a week which saw multi-month and in some cases multi-year technical support levels smashed. Copper lost another 1.5%, while aluminium and nickel were also hit after a week that saw a record US$2.7bn withdrawn by funds from commodity and precious metal ETFs.

The oils held their ground on expectations OPEC may cut production in order to support prices. Brent rose US55c to US$100.36/bbl, while West Texas gained US24c to US$87.97/bbl.

Spot iron ore fell US60c to US$138.00/t.

On Friday night the G20 finance ministers and central bankers meeting gave its support to Japan’s rampant money printing program as long as the government moves swiftly to define a credible fiscal plan as well. The sellers thus moved back into the yen, sending the US dollar index up 0.2% to 82.75. The Aussie is off 0.2% to US$1.0271. Gold’s fightback continues, with the precious metal rising US$17.20 to US$1406.50/oz.

The SPI Overnight rose 11 points or 0.2%.

It will be another big week for earnings reports in the US this week. In the frame will be results from Dow components Caterpillar, Du Pont, United Technologies, Proctor & Gamble, Boeing, Ford, 3M and Exxon along with reports from other majors such as Apple, Yum Brands, Colgate-Palmolive, Dow Chemical and Starbucks.

On the economic front, tonight sees the Chicago national activity index and existing home sales, Tuesday brings new home sales, the FHFA house price index and the Richmond Fed manufacturing index, Wednesday durable goods orders, and Friday the Michigan Uni consumer sentiment measure along with the first estimate of March quarter GDP. Expectations are for 3.0% annualised growth compared to December’s 0.4%.

Tuesday will also see a flash estimate of the US April manufacturing PMI. The eurozone will also see an estimate, and both will follow HSBC’s flash reading for the Chinese PMI. The UK will also post a first estimate of March quarter GDP on Thursday, for which 0.1% growth is expected after December’s shock 0.3% contraction. The influential German IFO business sentiment survey is due on Wednesday.

The Bank of Japan will hold a monetary policy meeting on Friday, but after having made The Big Announcement last month, will probably not add to it.

It’s Anzac Day on Thursday for Australia and New Zealand, meaning markets are closed. Given it’s a Thursday this year and school holidays are underway in Australia, we can pretty much write off Friday as well, although markets are open.

Resource sector quarterly production reports continue to roll in this week. Today sees reports from OZ Minerals ((OZL)), Panoramic Resources ((PAN)) and Western Areas ((WSA)), while highlights tomorrow include Newcrest ((NCM)) and Oil Search ((OSH)). ResMed ((RMD)) will post its quarterly earnings results on Friday.

It’s a very quiet week for economic releases, but for one biggie. The March quarter CPI data are released on Wednesday and economists are expecting a 0.6% jump following the December quarter’s 0.2%. This would take annual headline inflation to 2.7%, up from 2.2%, but expectations for a core RBA reading of 2.4% implies a level well inside the 2-3% target band and thus room to move for the RBA on rates.

At the beginning of April it appeared if the RBA would not cut rates at all, but in the interim we’ve seen a weakening of US economic data, a weak Chinese GDP result and a $7bn federal budget shortfall due to, the Treasurer claims, the strong Aussie dollar. Wayne Swan has vowed not to further cut spending, which rather hits the ball back into the monetary policy court.

FNArena will be “closed” on Thursday albeit fully accessible.

Rudi will appear on Sky Business this morning at 11.15am and tomorrow at 5.30pm.
 

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

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