The Monday Report

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By Greg Peel

The ASX 200 edged quietly higher on Friday to be sitting just under its “now what?” level of 5500, at 5492, ahead of an expected quiet session on Wall Street. And quiet it was indeed. While the Memorial Day long weekend is not preceded by a half-day session in the stock markets, it might as well be given volumes posted on Friday were the lowest for 2014 to date. Bond markets enjoyed an official half-day.

We can only, therefore, take Friday’s action with a grain of salt, which saw the S&P 500 close over 1900 for the first time in history. It was a close-run thing – the index closed up 0.4% at 1900.53, to be precise, while the Dow gained 63 points or 0.4% and the Nasdaq added 0.8%. The rebound in the momentum stocks and small caps clearly continued, with our new friend the Russell 2000 gaining 1.1%.

On the data front, US new home sales rose a better than expected 6.4% in April to 433,000, although this is shy of the 452,000 sales marked in April last year.

The tail end of the US earnings season continues to throw up a very mixed bag of numbers. Technology dinosaur Hewlett-Packard posted a strong result which saw its shares rise 6%, while a 12% fall in sales for teen fashion favourite Aeropostale translated into a 25% plunge in the share price for the company. Given very conservative forecasts leading into the season, it is clear that a “beat” is mildly rewarded but a “miss” is crucified. All up the results season has suggested an earnings growth rate of around 8% nevertheless, which is a lot better than analysts had prepared themselves for given the harsh winter.

The US may get a reality check this week though with the release of the first revision of the March quarter GDP. The first estimate suggested only 0.1% growth, but that was just extrapolating January. An extrapolation January and February provides the first revision, and expectations are for likely contraction, perhaps in excess of 1%.

The US dollar was 0.2% higher on Friday at 80.36 while gold maintained its stasis at US$1292.90/oz ahead of the potentially volatile Ukraine election (more on that in a moment) and EU elections held over the weekend. The US ten-year yield drifted off a tick to 2.54% before bond traders bailed at lunchtime and the Aussie is unmoved at US$0.9230.

Sentiment is improving in metal markets which on Friday saw nickel steady for once while copper and aluminium each posted gains of around 1%. The LME is closed tonight for the UK bank holiday. The jitters may well return to the local iron ore sector today given a US$1.30 fall in the iron ore price back to US$97.50/t.

The oils continued to push incrementally higher, and here is where the potential implications of tension in the Ukraine manifest. Brent was up US23c to US$110.59/bbl and West Texas was up US59c to US$104.37/bbl ahead of the weekend’s presidential elections in the troubled country which were marred by intimidation. While an otherwise strong turnout sees the pro-Western candidate likely to win comfortably, Crimeans did not vote and pro-Russians and armed militants prevented access to polling booths in the besieged eastern regions.

So it would appear the pro-Westerners have won the day but only because the pro-Russians abstained, one way or the other, and the suggestion is Putin will question the validity of the result.

The SPI Overnight closed up 3 points on Saturday morning.

Both the US and UK markets will be closed tonight so a couple of quiet sessions are most likely for Bridge Street.

Thereafter, it’s an important week for US data beginning on Tuesday with the Case-Shiller and FHFA house price indices, Conference Board consumer confidence and the Richmond Fed manufacturing index. Thursday sees the GDP revision for which consensus is currently sitting at negative 0.6%. While a contraction is anticipated, the psychological effect may be noticeable, although expectations for second and third quarter growth rates are now rising to as much as 4-5%.

Friday sees personal income and spending, the Chicago PMI and the Michigan Uni fortnightly consumer sentiment measure.

China posts industrial profit numbers on Wednesday while in Japan, retail sales are out on Thursday and inflation, industrial production, manufacturing and unemployment data are due Friday.

There are no releases to speak of in Australia until we reach Wednesday, when the first of the March quarter data start rolling in ahead of next Wednesday’s GDP result. This week sees construction work done on Wednesday and private capital expenditure on Thursday, while April new home sales are also due on Thursday and Friday sees April private sector credit.

On the local stock front, Telstra’s ((TLS)) mobile division will hold a briefing today and ALS ((ALQ)) will release its full-year result tomorrow. Aristocrat Leisure ((ALL) posts its interim on Wednesday and Programmed Maintenance ((PRG)) its full-year, while Wesfarmers ((WES)) provides a briefing. Suncorp ((SUN)) will hold an investor day on Thursday.

There are also several AGMs due this week, the highlights of which will be OZ Minerals ((OZL)) tomorrow, Iluka Resources ((ILU)) on Wednesday and the Westfields ((WDC)), ((WRT)) on Thursday to discuss the latest Scentre reorganisation proposal.

Rudi will appear on Sky Business today at 11.15am, on Wednesday at 5.30pm and on Thursday at noon and again between 7-8pm for the Switzer Report.
 

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

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