The Monday Report

This story features BCI MINERALS LIMITED, and other companies. For more info SHARE ANALYSIS: BCI

By Greg Peel

It was another flat close for the Australian market on Friday after the ASX200 recovered from being down 20 points around midday. The geopolitical climate remains uncertain, and this week sees the first trickle of corporate earnings reports before the season proper ramps up in August.

The EU is in the process of discussing more stringent sanctions against Russia which, given Russia provides Europe with a third of its energy requirements, makes European traders nervous. The German index fell 1.5% on Friday night and the French index fell 1.8%. The US has already tightened its sanctions against Russia, and we have now seen evidence of likely tit for tat tactics.

Suddenly Russian health authorities have told McDonalds its burgers do not meet nutritional standards.

Over the weekend we have also learnt of international investigators being unable to attend the Ukraine crash site, despite assurances, given ongoing fighting between the army and the rebels. And the war in Gaza appears to be escalating. This war has little impact on global financial markets but makes investors nervous nevertheless.

Geopolitical uncertainty was a factor in Wall Street opening lower on Friday night, exacerbated by poorly received earnings results. Having posted their results late on Thursday night, both Visa (Dow) and Amazon copped a beating.

Visa beat on earnings but downgraded revenue forecasts going forward. The global payment processing company cited a weaker US recovery than previously assumed and a drop in cross-border transactions which can be largely put down to Russian tensions. Given Visa is somewhat of a global bellwether, the stock’s 3.8% drop encouraged selling elsewhere and was influential in the Dow closing down 123 points or 0.7% to 16,960, below the 17k level once more. Amazon simply posted a bigger than expected loss, sending its shares down 10%, and both companies helped the S&P down 0.5% to 1978. The Nasdaq also fell 0.5%.

Despite some weaker results among marquee names, the net run-rate after the biggest week of the season has jumped to around 9% earnings growth. This should be considered fabulous stuff, but Wall Street just can’t get excited when the revenue run-rate remains at a paltry 3% by comparison, suggesting ongoing cost cutting, and a plethora of share buybacks among corporations is artificially inflating earnings per share numbers.

This week sees the release of the first estimate of US June quarter GDP. There is much uncertainty around this result, as economists have set an unusually wide range of forecasts. Some have numbers well below 3%, others suggest as much as 5%. Wall Street will need to see at least 3% to confirm that the March quarter 2.9% contraction was just about the weather and not about underlying weakness. It’s a bit of a lottery, as the first estimate is merely an extrapolation of the month of April, and the final result, which won’t be out till September, is often a lot different.

June durable goods orders were released on Friday night, and showed a 0.7% gain against 0.5% expectation.

The UK June quarter GDP result was released on Friday night, and came in as expected. The UK economy grew by 0.8% in the quarter to mark 3.2% annualised, and in so doing has now surpassed the GDP peak marked prior to the GFC. Britain is back.

It was clear the world was not keen to take too much risk into the weekend nonetheless. Aside from stock market falls, gold jumped back US$14.70 to US$1308.30/oz and the US ten-year bond yield fell 4 basis points to 2.47%. The US dollar index rose 0.2% to 81.03.

Base metal markets were mixed in London. Nickel has quietened down for now to let aluminium become the latest star, but the latter copped a 1% sell-off on Friday. Copper also fell back, by 0.6%, while lead took off with a 1.6% gain. Iron ore ended the week on a slightly brighter note, rising US70c to US$94.30/t.

The fear of energy reprisals from Russia was evident in a US$1.01 jump for Brent crude to US$108.23/bbl when West Texas was steady at US$101.96/bbl.

The Aussie is 0.2% lower at US$0.9396.

The SPI Overnight fell 8 points.

The consensus forecast for Wednesday’s US GDP estimate stands at 2.9%. Prior to that release, tonight sees US pending home sales and tomorrow the Case-Shiller house price index and Conference Board monthly consumer confidence. It’s a big day on Wednesday, involving not only the GDP but the private sector jobs number for July and a Fed policy meeting.

Thursday brings the Chicago PMI, and Friday it’s construction spending, personal income and spending, vehicle sales, the fortnightly consumer sentiment measure and, the big one, non-farm payrolls.

Friday is the first of the month, which means manufacturing PMIs from Australia, China, Japan, the eurozone, UK and US.

Japan will release jobs and retail sales data tomorrow and industrial production on Wednesday. The eurozone’s jobs numbers are due on Thursday along with the flash estimate of July CPI.

Australia’s economic data highlights this week begin on Thursday with building approvals and private sector credit, followed by the manufacturing PMI, Rismark house prices and the June quarter PPI on Friday.

This week sees the tail end of the Australian resource sector production report season and a handful of early season company profit results.

In the former camp, BC Iron ((BCI)), Beach Energy ((BPT)), Perseus Mining ((PRU)), AWE Ltd ((AWE)), Panoramic Resources ((PAN)), Lynas ((LYC)), Origin Energy ((ORG)) and Paladin Energy ((PDN)) are the highlights.

In the latter camp, Leighton Holdings ((LEI)) and Navitas ((NVT)) report today, Alacer Gold ((AQG)) tomorrow, Genworth Insurance ((GMA)) and OceanaGold ((OGC)) on Wednesday, Energy Resources of Australia ((ERA)) on Thursday and ResMed ((RMD)) on Friday.

Woolworths ((WOW)) will report June quarter sales on Wednesday.

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. www.fnarena.com

Click to view our Glossary of Financial Terms