The Monday Report (On Tuesday)

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By Greg Peel

Thursday night saw a typically quiet pre long weekend session on Wall Street and the NYSE closing bell resounded in a virtually empty trading floor. The volatility of past sessions abated as the market looked forward to a break. The Dow closed down 16 points or 0.1% while the S&P gained 0.1% to 1864 and the Nasdaq, for once, was flat.

It seems hard to believe, but last week saw the S&P 500 post its best gain since last July, with only four days to do it in. And there we all were fretting over the Nasdaq sell-off. It must be said that Janet Yellen can take the credit, influential in turning around what was looking like a burgeoning correction, because earnings results to date have been nothing to write home about.

Among the Dow stocks reporting, IBM fell 3.3% on Thursday night, American Express fell 1.4% and United Health fell 3.1% while General Electric rose 1.7% and Goldman Sachs was flat. Outside of the Dow, Morgan Stanley rose 2.9% and Google fell 3.7%.

The economic data release of the night showed the Philadelphia Fed manufacturing index rebounding to plus 16.6 from plus 9.0 in March and minus 6.3 in February when economists were looking for plus 10.0. This is a straightforward story of weather, but not all data to date have definitively proved the weather argument.

The US dollar index was steady at 79.85 but gold fell through 1300, posting a US$7.90 fall to US$1294.60/oz. The big mover on the night was nevertheless the US ten-year bond yield, which after having reacted only modestly to the Nasdaq sell-off, Ukrainian escalation and Yellen speech, suddenly decided to jump 8 basis points to 2.72%. Perhaps some impatient (price) longs decided to bail before the weekend.

It was a quiet and insignificant session on the LME for base metals while Brent crude did little and West Texas rose US76c to US$104.52/bbl.

The Aussie dollar fell 0.2% to US$0.9353 and the SPI Overnight was up 11 points or 0.2%.

Volumes on Wall Street did not pick up much last night either, with the holiday in UK/Europe used as an excuse. The Dow nevertheless rose 40 points or 0.3% while the S&P gained 0.4% to 1871 and the Nasdaq rose 0.6%.

I noted above last week’s four-day week saw the largest weekly gain for the S&P 500 since July. Last night’s rise meant that the past five sessions have marked the longest winning streak for the broad market index since October. But volumes have been low over the period, leading many to dismiss the rally as merely Yellen-driven floss, and unsustainable. The real story will emerge from earnings results.

Prior to the beginning of the earnings season, consensus forecasts suggested S&P 500 earnings growth of 0% for the weather-impacted March quarter. Two weeks and 85 stock reports in, the result to date is -1.1%. However the bulk of that decline is attributable to just two stocks – the big banks and Dow components JP Morgan and Bank of America. This week alone sees 150 S&P stocks reporting, so the real money is waiting for a more weighty picture to emerge.

After the bell last night, 2013’s high flyer Netflix posted a strong result and its shares are up over 6% in the after-market. Netflix is trading on around a 99x multiple of 2014 forecast earnings.

The US dollar index ticked up 0.1% last night to 79.96 while the US ten-year bond yield remained steady at 2.72%. Gold fell US$4.70 to US$1289.90/oz and the Aussie has slipped further, down 0.3% to US$0.9326 while local traders stayed home with chocolate hangovers.

The LME was closed, hence no change to base metal prices. However, two sessions have seen a net US$2.90 fall in the spot iron ore price, to US$113.30/t.

Brent crude again ticked up only slightly, adding US15c to US$109.87/bbl while West Texas added US21c to US$103.28/bbl.

The SPI Overnight was closed for the holiday so the 11 point gain posted on Thursday night will adjust at 9.30am this morning when the day SPI opens to account for last night’s action, or lack thereof, on Wall Street.

With only three days in the local week ahead of another three days off, school holidays, and most of Bridge Street taking the three-days-for-ten option, this week will be extremely quiet in Australia. We will see the rather important release of the March quarter CPI tomorrow.

Consensus forecasts have headline inflation rising 0.8% for the quarter, as it did in December, for 3.2% annual growth against December’s 2.7%. If accurate, the wider media will jump up and down and scream “Omigod, we’re above the RBA’s target range!” but in fact the RBA looks at core inflation (ex food & energy) and the “trimmed mean” forecast is 0.7% qoq growth, down from 0.9% in December, for 2.9% yoy growth, up from 2.6%.

It’s getting to the top of the central bank’s 2-3% comfort zone but at the April meeting the RBA board reiterated its belief unemployment will likely tick a little higher and inflation will remain contained. Mind you, the unemployment rate has since fallen to 5.8% from 6.0%.

Aside from a busy week for earnings, the US will see important economic data this week as well. Tonight brings existing home sales, the FHFA house price index and the Richmond Fed manufacturing index. Tomorrow sees new home sales, Thursday durable goods, and Friday fortnightly consumer sentiment.

The US will also see a flash estimate of its April manufacturing PMI tomorrow, following from similar releases in Europe and China (HSBC). It could be a fun day for the Aussie with both the China PMI flash and local CPI numbers competing.

Australian and New Zealand markets will be closed on Friday, lest we forget, but beforehand we’ll see quarterly production reports from Mincor Resources ((MCR)), Newcrest Mining ((NCM)), Panoramic Resources ((PAN)) and Perseus Mining ((PRU)) tomorrow and Atlas Iron ((AGO)) on Thursday. Thursday also sees a quarterly profit result from ResMed ((RMD)).

Rudi will appear on Sky Business 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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