The Monday Report

This story features BEACH ENERGY LIMITED, and other companies. For more info SHARE ANALYSIS: BPT

By Greg Peel

It was a tale of two different sessions on Wall Street over Thursday and Friday nights but underpinning both was an escalation in tensions in the Ukraine. Thursday saw a flat session despite Russia beginning troop exercises on the Ukrainian border but by Friday US stocks headed downward as traders took profits and shifted to the sidelines ahead of any further deterioration over the weekend.

Thursday’s session ended rather remarkably, with the Dow Jones closing exactly 0.00% unchanged. The last time this happened, to two decimal points, was in 2001. The S&P gained 0.2% to 1878 which was all about Apple, thus the Nasdaq rose 0.5%. Apple shares closed up 8% in the session as was established in Wednesday night’s after-market trade after the company reported a big earnings beat, share buyback, dividend increase and stock split.

Other earnings results on the night provided a 1.8% jump for Caterpillar (Dow) despite the CEO expressing concerns over Russian tensions, a 0.6% fall for General Motors, a 2.2% jump for Microsoft (Dow), a 3.5% drop for Qualcomm and a 0.7% gain for Starbucks. After the bell, Amazon posted a beat on revenue and earnings and rose 2.2% in the after-market.

The major economic data release for the session was new durable goods orders which rose 2.6% in March, beating 1.8% expectations and marking the biggest rise in four months. Aircraft orders did rise but excluding lumpy transport, orders still rose 2.0%.

Despite an initial positive reaction, it all went awry for Amazon in Friday’s session. Triggering the turn in sentiment was guidance provided by management alongside the numbers which was not encouraging enough to justify the lofty PE multiple the stock commands. After all these years (and bearing in mind Amazon was around to be trounced in the 2000 tech-wreck), Amazon can generate enormous revenues but still only on a very slim profit margin. A tepid outlook for E meant Amazon’s P, for many, was just too high. So down went Amazon shares on Friday, falling 9%.

The drop affected a fall in the Nasdaq of 1.8% on Friday, due both to Amazon’s weighting and sympathetic selling. Apple had tech looking good on Thursday but Amazon’s fall suggests doubts over PE multiples for momentum stocks in the fields of online retail, social media, cloud computing and biotech still linger. The S&P fell to 1863 and the Dow fell 140 points or 0.9%.

Friday’s earnings reports were not flash either, with Dow stocks Ford and Visa falling 3.3% and 5% respectively. American Electric Power, on the other hand, helped underscore the weather impact in the quarter by rising 2%.

The US consumer is nevertheless becoming increasingly more confident, even as the housing rebound continues to falter. Despite a big drop in new mortgages in March, Michigan Uni’s consumer sentiment measure marked 84.1 for the final April survey, up from 80.0 at end-March and representing a nine month high.

This positive news was nevertheless overwhelmed on Friday by the geopolitical escalation. Notwithstanding another collapse of Middle East peace talks (Middle East peace is an oxymoron, is it not? I was still at school when Carter negotiated the Camp David accord), the death of five pro-Russian militia at the hands of Ukrainian troops in the separatist-held city of Slaviansk at a time Russia is stepping up military exercises on the border does not bode well. Russia has not only ignored the Geneva agreement, which was to see Russian troops disarming and withdrawing and was signed by Russia, Ukraine, the US and EU, it has escalated the posturing.

For US and international markets, the fear is not about what might become of the Ukraine, or any other FSU nation. The fear revolves around what greater sanctions might be imposed on Russia which will impact on the international economy. For example, were the EU to ban imports of Russian gas and both the EU and US to ban imports of Russian enriched uranium, energy markets across the developed world would be potentially thrown into disarray.

Which is why Europe is hesitating. The US threatened more powerful sanctions on Friday but President Obama’s declaration he is “ready to act” is hamstrung, he admitted, by EU indecision.

Whatever the case, with Wall Street once again flirting with new all-time highs earlier last week it no doubt made sense to a lot of traders to shift to safety ahead of the weekend. The shift to safety has also been reflected in the price of gold, which rose US$10.20 on Thursday night and US$9.90 on Friday night to reach US$1303.80/oz, despite little change in the US dollar index. The US ten-year bond yield was little changed on Thursday but down 2 basis points on Friday to 2.66%.

The LME had its first chance on Thursday night to respond to HSBC’s flash Chinese manufacturing PMI which, while still in contraction territory, saw an increase. Movements were all positive bar high-flying nickel. Nickel has run hard since the imposition of Indonesian export bans and base metal bellwether copper has been left in its wake. Thursday saw copper up 1% and nickel down 1% as commodity funds decided it was time for a switch.

The Ukraine impact was nevertheless felt on Friday night as most metals fell back again. Yet copper managed to hold steady and it was back to business for nickel, which regained all of Thursday’s loss.

Spot iron ore rose US$1.00 on Thursday and fell US$2.20 on Friday for a net US$1.20 loss since the ASX was last open to US$111.00/t.

The international oil market is where a good deal of Ukraine nervousness should manifest. But between Brent crude and West Texas Intermediate, only Brent is internationally traded at this stage and is also the benchmark price for Europe. Thus on Thursday night Brent jumped US$1.12 to US$110.33/bbl on the Ukraine threat while the weekly US inventory report, which showed greater than expected crude supply, had WTI rising only US40c to US$102.00/bbl before falling US$1.32 on Friday to US$100.62/bbl. A US$10 gap between the two crudes was too much for spread traders on Friday so Brent fell back US79c to US$109.54/bbl.

On Thursday night the Aussie fell 0.3% to US$0.9262 but on Friday night it rebounded 0.2% to US$0.9281.

On Thursday night the SPI Overnight rose 3 points and on Friday night it fell 23 points or 0.4%.

The punctuated two-week holiday period in Australia is now over, kids go back to school and business quietly returns to normal. Volumes should start to pick up again on the ASX this week and there is an avalanche of critical international data releases set to provide the impetus, with the US leading the charge, all in the shadow of further escalation in the Ukraine and subsequent sanctions.

Tonight in the US sees pending home sales and tomorrow the Case-Shiller house price index and the Conference Board consumer confidence number. The big day is Wednesday, which features the ADP private sector jobs report for April, the first estimate of March quarter GDP, which at this stage is forecast at a miserly, but weather impacted, 1.5% growth rate, and a Fed policy meeting. It is unlikely the Fed statement will suggest any change to the tapering program or extended period of low interest rates but the GDP is somewhat of a lottery.

On Thursday it’s manufacturing PMI day and the US will also see numbers for construction spending, personal income and spending and vehicle sales, while on Friday it’s factory orders and the all-important April non-farm payrolls release.

If all of that is not enough grist for the mill, the UK will release its first estimate of March quarter GDP on Tuesday, the Bank of Japan will hold a policy meeting on Friday to discuss a response to the fiscal drag of the newly introduced sales tax, and a flash estimate of the eurozone CPI will be provided. If it is weak, markets will move closer to expecting the ECB to act with some sort of QE-style stimulus.

Beijing will release the official China manufacturing PMI on Thursday despite China being closed for public holidays on Thursday and Friday. The HSBC number will thus be out next week. Japan will be closed tomorrow.

Europe will be closed on Thursday for May Day (or should that be M’Aidez!) so while the UK manufacturing PMI is out on Thursday, the eurozone follows on Friday.

Australia’s PMI will be out on Thursday. Private sector credit data is due on Wednesday, the RP Data-Rismark house price index on Thursday, and new home sales, building approvals and the March quarter PPI on Friday.

If all of that’s not enough, things are starting to hot up again on the Australian corporate calendar.

We still have more resource sector quarterly production reports to get through and there are several due this week, including numbers from Beach Energy ((BPT)), Whitehaven Coal ((WHC)), Western Areas ((WSA)), Lynas ((LYC)) and Origin Energy ((ORG)). We’ll also see quarterly reports from Asciano ((AIO)) and Mirvac ((MGR)) and quarterly sales results from Wesfarmers ((WES)) and Woolworths ((WOW)).

We’re also about to enter an AGM season for calendar year reporters and this week sees Woodside Petroleum ((WPL)) as the highlight. And finally, bank reporting season is upon us with ANZ Bank ((ANZ)) reporting its interim on Thursday and Macquarie Group ((MQG)) its full-year on Friday.

So dust off the last of that beach sand, it could be a rock’n’roll ride this week.

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.

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