The Monday Report

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By Greg Peel

Bridge Street appeared ambivalent about Syria on Friday, posting a steady climb in an ultimately strong session. The threat of an immediate Allied strike on Syria had subsided, but the response on Wall Street on Friday night was not as positive, with the Dow closing down 30 points or 0.2%, the S&P down 0.3% to 1632 and the Nasdaq down 0.6%.

Volume was nevertheless light on Wall Street ahead of the Labor Day long weekend, and many participants no doubt shot off early. Wall Street will be closed tonight. The weekend has seen the UK parliament vote against action against Syria, by a slim margin, forcing David Cameron to rule out any British involvement in Allied retaliation. President Obama has subsequently vowed to go it alone, albeit swearing any attack would not be open-ended and would not involve ground troops. Yet he also made the surprise announcement that he would seek the approval of Congress before acting.

It makes sense of course. With debt ceiling negotiations approaching, Obama does not want to send the US to another expensive war only to be castigated by the Republicans for the cost. War is not a typically Democratic pursuit, hence if a majority Republican lower house votes in favour Obama can at least claim bipartisanship and cannot be solely blamed for whatever might transpire. But whatever happens in Congress, it is unlikely to happen in a hurry. Thus a retaliation is further postponed, and the longer the postponement, the less fearful are global financial markets.

US economic data releases were mixed on Friday. The Chicago PMI rose to 53.0 from 52.3 in July, while the Michigan Uni fortnightly consumer sentiment gauge fell to 82.1 from 85.1 at the end of July. Both personal spending and personal incomes rose by 0.1% in July when economists had expected 0.3% and 0.1% respectively. The data show the US consumer is remaining cautious into the third quarter, and that income growth in the US continues to be belligerently sluggish despite a supposed modest economic recovery.

The US dollar index edged up by 0.1% to 82.07 on Friday while gold lost US$11.80 to US$1396.50/oz as the Syria premium waned. The Aussie is down 0.3% to US$0.8902. The US ten-year bond was steady overnight at 2.75%.

Base metals were weaker in London despite the UK withdrawal from any Allied attack on Syria, with the situation in the Middle East still fluid. Squaring to the downside has prompted some technical selling which saw all metals down 1-2%.

The oils joined gold in reducing some of the initial Syria premium, with Brent down US$1.15 to US$114.01/bbl and West Texas down US$1.04 to US$107.76/bbl.

Spot iron ore fell US60c to US$137.70/t.

The SPI Overnight closed down 18 points or 0.4% on Saturday morning but that drop is not likely to be replicated when the futures open ahead of ASX trading this morning. The developments with regard to Syria are one thing, but the other is China’s official manufacturing PMI for August which was released yesterday.

China’s PMI rose to 51.0 from 50.3 in August. It’s baby steps, but the numbers do indicate that the Chinese slowdown so worrying in the first half of this year has now bottomed out, and that Chinese growth has stabilised at a lower level. The world can live with a lower level, as long as there is stability. The Chinese PMI should provide support on Bridge Street today.

Activity is nevertheless not likely to be rampant today with the large cap earnings season now effectively over, Wall Street closed tonight, an RBA rate decision due tomorrow, the GDP on Wednesday, US non-farm payrolls on Friday and the federal election on Saturday, all under a lingering cloud of Syria fears.

Today’s local economic releases include June quarter company profits and inventories, and monthly building approvals, RP Data Rismark house price index and the manufacturing PMI. Tomorrow it’s the June quarter current account and net exports, along with monthly retail sales and the RBA meeting. Will the RBA move ahead of the election, or wait to see what the election might bring?

On Wednesday the June quarter GDP is due, with economists expecting a repeat performance of the March quarter, that is 0.6% quarterly growth for a 2.5% annualised growth rate. The service sector PMI is also due. Thursday it’s the monthly trade balance, Friday the construction PMI and then we all go to the polls on Saturday.

Today also brings HSBC’s China manufacturing PMI, and tonight the PMIs of the eurozone and UK. Beijing’s service sector PMI is due tomorrow and HSBC’s on Wednesday, along with the eurozone and UK.

The US PMIs will run a day late due to the holiday, with manufacturing out tomorrow night along with construction spending and vehicle sales, while Wednesday brings the trade balance and the Fed Beige Book. Thursday it’s the services PMI with the ADP private sector employment report, chain store sales and factory orders, and Friday it’s the jobs numbers.

All up a busy week.

The local results season may have wound down but we now hit a period of hardcore ex-dividend activity, which will act as a drag on index performance over this week. Today is busiest, with Amcor ((AMC)), ASX ((ASX)), BHP Billiton ((BHP)) and Fortescue ((FMG)) among the companies going ex-div.

Rudi will appear on Sky Business today at 11.15am, on Wednesday 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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