The Monday Report

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By Greg Peel

The first estimate of March quarter GDP for the US released on Friday night came in at 2.5% growth, up from December’s 0.4%, but well below expectations in excess of 3.0%. With Europe wallowing, a turnaround in China and an improving recovery in the US were supposed to be the drivers for an improving global economy in 2013; with Japan adding a bit of a wildcard. Both China and the US have now disappointed on their first quarter numbers, yet as at Friday a 1582 close for the S&P 500 is only 0.6% below the fresh all-time high set in early April.

The weak GDP result ensured a weaker Wall Street on Friday, but there was no major sell-off. The S&P closed down 0.2% and the Nasdaq fell 0.3%, while the Dow managed to recover to an 11 point rise for the session. Dow components Hewlett-Packard and Chevron both posted better than expected results. Preventing any significant weakness is the ever present shadow of the Fed. Slower growth for the US economy means less likelihood the Fed will begin exiting QE anytime soon.

Friday’s fortnightly update on consumer sentiment from Michigan Uni was either a good or bad result, whichever way you look at it. A fortnight ago the sentiment reading fell to 72.3 from 78.6 at the end of March – a substantial drop accredited to budget cut measures stemming from the sequester. Friday’s reading came in at 76.4, which suggests a bounce, but it is still down on a month ago.

Consumer sentiment might be drifting, but improved consumer spending was still the biggest driver of a GDP growth number that was otherwise thwarted, once again, by lower than expected government spending. Economists are now adjusting their ongoing forecasts to account for a tighter government purse over the year. With budget cutting rampant in Washington, one can imagine just how desperate the Administration must be not to have to get involved in Syria.

The stock market may have posted a tempered response to the GDP, but the US ten-year bond yield dropped 5 basis points to 1.66% on Friday. While we continue to see determined strength in equities, we are yet to see the Big Switch out of bonds. The safe haven remains popular and underpinned by ongoing Fed purchases.

There was little doubting which way the US dollar should go on the weak GDP and it fell 0.3% to 82.50 on its index. The Aussie remained steady pretty much all last week and is trading at US$1.0271. After a very solid bounce from its recent capitulation, gold fell back US$3.60 to US$1461.80/oz on Friday.

It was a similar story for base metals. After having fallen steadily since the weak Chinese data, base metals staged a sharp short-covering bounce last week but. Although on Friday, the weak US data brought that bounce to an end. Copper, lead, nickel and tin all fell 2%, while zinc fell 2.7% and aluminium fell 3.5%, despite a weaker US dollar. With the summer slowdown now approaching, commentators expect the weak trend to resume.

The oils also fell back on Friday, with Brent falling US44c to US$102.97/bbl and West Texas dropping US86c to US$92.78/bbl.

Spot iron ore fell US50c to US$134.10/t.

The SPI Overnight lost 3 points.

This week will be particularly busy on the global economic and corporate data front, including further US earnings results, further Australian mining production reports and bank results, and monetary policy meetings for both the Fed and ECB. It will also be a week punctuated by public holidays. Japan will be closed on Monday and Friday, China will be closed Monday through Wednesday, Europe will be closed on Wednesday for May Day and Friday begins Orthodox Easter.

Wednesday is the first of the month and that means global PMIs. Australia, China, the UK and US will report manufacturing PMIs on Wednesday and service sector PMIs on Friday. Due to the holiday, the eurozone manufacturing PMI is due on Thursday. Japan will release its manufacturing PMI on Tuesday along with industrial production, retail sales and employment numbers.

Aside from PMIs, tonight in the US sees pending home sales and personal spending and income, Tuesday its consumer confidence, the Chicago PMI and the Case-Shiller house price index. Wednesday brings vehicle sales, construction spending, the ADP private sector unemployment number and a Fed monetary policy statement, which will likely be little changed from last month, which was little changed from the month before.

On Thursday it’s the trade balance and quarterly productivity, while Friday sees factory orders along with the all-important non-farm payrolls number.

The ECB will make its monthly monetary policy statement on Thursday. Speculation is rife for a rate cut, although it must be said speculation has been rife for some time now. Eurozone economic data continue to wane, nevertheless, so as long as inflation is contained the ECB is ready to move.

Australia’s economic week begins tomorrow with private sector credit. Wednesday brings new home sales and the RP Data-Rismark house price index, while Thursday it’s building approvals and on Friday it’s the March quarter PPI. As well as the PMIs on Wednesday and Friday.

It’s another busy week for resource sector quarterly production reports, with highlights including Origin Energy ((ORG)) and Paladin Energy ((PDN)). Please refer to the FNArena calendar. Tomorrow ANZ Bank ((ANZ)) will release its half-year earnings report and Westpac ((WBC)) will do likewise on Friday. Macquarie Group ((MQG)) will release its full-year result on Friday and there will be a raft of AGMs held across the week.

Rudi will appear on Sky Business today at 11.15am and at 7pm for the Switzer Report, on Tuesday at 5.30pm and on Thursday at noon.

 

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

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