The Monday Report (on Tuesday)

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By Greg Peel

The Australian stock market predictably joined in the global stock revaluation stampede on Friday in the wake of the ECB’s announced E1.2trn QE stimulus package. Gains across all sectors were broadly even for a net 1.4% rise for the index, with the exception of energy. The strong session clearly was seen as an opportunity to pick up bargains among the beaten down oil & gas names, and hence energy posted a 3.2% increase.

An additional fillip was provided by HSBC’s flash estimate of its China manufacturing PMI for January. The estimate suggests a reading of 49.8, up from 49.6 in December, and beating forecasts of 49.5.

Japan also saw a predicted PMI increase, to 52.1 from 52.0, and pre-stimulus, the eurozone’s composite PMI (manufacturing plus services) estimate showed an encouraging increase to 52.2, up from 51.4 and beating estimates of 51.9. The world’s only strong, supposedly, economy – the US – saw its manufacturing PMI slip to 53.7 from 53.9 when 54.0 was expected. US existing home sales numbers for December met expectations.

But it was all a bit academic, as Friday’s trade across the globe remained subject to ongoing ECB reverberations.

Forex traders sent the euro plunging on Thursday night, on the strength of an E1.2trn bond-buying program exceeding E1.0trn expectations. They slept on it, and then sent the euro plunging once more on Friday night. Some stability was achieved later in the session nevertheless, to leave the euro down around a net 2.5% against the greenback post announcement.

The follow-through effect is unwanted strength in the US dollar, which rose another 0.8% on its index on Friday night to 94.83. The strong dollar empirically puts commodity prices under pressure, but Friday night also brought news ratings agency Moody’s had lowered its base metals industry rating to negative from stable given slowing global growth and falling prices.

One might argue a rating downgrade based on falling prices should not prompt further price falls, as that would constitute a double-up of sorts, but tell that to nervous LME traders. On Friday night copper fell 2.8%, exceeded only by nickel with a 3.7% fall, while the other metals all fell up to 2.5%.

Iron ore fell US40c to US$65.90/t.

Over on the Nymex, traders were still reeling from Thursday night’s 80-year high in weekly crude inventories. They also learned that Saudi Arabia’s new king has no intention of altering the kingdom’s stance on maintaining oil production levels, so they sold down West Texas once more, by $1.20 to US$45.48. West Texas finished down 7% for the week, at its lowest level since March 2009 (which, funnily enough, is when the Fed introduced QE1).

On the other hand, Brent crude was relatively steady at US$48.75, suggesting maybe – just maybe – the global benchmark oil price is starting to find some stability.

After a solid week of gains on Wall Street, traders decided Friday was a good day to take some profits. The Dow fell 141 points or 0.8% (but closed up around 1.2% for the week), while the S&P lost 0.6% to 2051. The Nasdaq managed a 0.1% gain. The mood was not the same in Germany however, where it remained a case of onward, ever upward for German stocks. The DAX ended the week with another 2% gain.

The gold price also slipped back on Friday night, likely as traders with longs from the low 1200s saw 1300 as the signal to take profits. Gold fell US$9.20 to US$1293.10/oz. Most notable, nonetheless, was the come-back trade in US bonds. Having eked out a rise in yield from 1.80% to 1.90% as first the rumour, then the fact of ECB stimulus emerged, the US ten-year yield fell back 8 basis points on Friday night to 1.82%. Meanwhile, the German bund rate fell to another new record low of 0.32%.

And the combination of US dollar strength and commodity price weakness means Friday night saw a new handle for the Aussie. It fell 1.6% to US$0.7923.

After a very strong week for Bridge Street, Friday night saw the SPI Overnight fall 12 points or 0.2%.

Over the weekend, the anti-austerity Syriza party claimed victory in the Greek election and swiftly formed a government through a coalition with Syriza’s diametrically opposite party in ideological terms, the far-right Independent Greeks. Syriza is far-left. Common ground is found in both opposing EU/IMF-imposed austerity. When currency markets re-opened last night, the euro was again sold heavily on the Greek news.

Yet the victory has been long expected, and fears of a recalcitrant Greece destabilising the whole eurozone have been diminished on the back of the ECB’s shock & awe stimulus package. Greece’s new finance minister has already suggested the government has no intention of exiting the eurozone. So watch this space. Meanwhile, the euro subsequently regained most of its Monday night losses, albeit gold saw the brunt of the election fall-out, dropping US$13.80 to US$1279.30/oz.

Wall Street saw selling on the open, to the tune of 100 Dow points, but by 11am the average was back to square. The German DAX rallied yet another 1.4% despite Greece, so there seemed little point in panicking across the pond. There were also some mixed US quarterly earnings reports to ponder, but mostly attention was turned to the New York skies. Winter Storm Juno is currently creeping through the US north east, and as the snow began to fall, traders squared up and the NYSE began to empty.

The Dow closed up 6 points while the S&P gained 0.3% to 2057 and the Nasdaq added 0.3%.

Juno is forecast to potentially be of “historic” proportions, so north east cities are pre-emptively taking precautions. Airports, schools, roads and offices are closing down as we speak. The NYSE will be open tonight, but it is assumed most Wall Street offices will be closed. Trading will thus be sparse and flat, one presumes.

Trading was anything but flat on the LME last night. A rumour spread that China’s State Reserve Bureau had begun to exploit falls in commodity prices and was buying copper. Thus Friday night’s falls in prices were reversed last night as all metals received a boost, despite the US dollar index remaining steady at 94.81. Copper bounced back 1.7% and nickel 3.5%, with all metals closing last night at relatively steady prices over two sessions.

The story was not the same for iron ore, the price of which took another tumble last night. Spot iron ore closed down US$2.60 to US$63.30/t last night, or $3.00 over two sessions.

The oils were moderately lower last night, with West Texas finishing down US26c to US$45.22/bbl and Brent finishing down US49c to US$48.26/bbl.

The Aussie is steady from Friday night at US$0.7918.

The SPI Overnight rose 13 points last night and thus a net one point over two sessions.

The UK will release its first estimate of December quarter GDP tonight. The eurozone will see a flash January CPI reading on Friday.

There is a raft of data due in the US for the rest of the week, culminating on Friday with the US first estimate of December quarter GDP. The market is forecasting 3.0%, down from September’s 5.0%. Tomorrow night sees the release of the first Fed policy statement for 2015, assuming Janet and co are not snowed in, one presumes. Talk now is of the FOMC members possibly tempering their rate rise enthusiasm in the wake of ECB stimulus and US dollar strength.

US economic releases include durable goods, Conference Board consumer confidence, new home  sales, Case-Shiller house prices and the Richmond Fed manufacturing index tonight, pending home sales on Thursday, and the Chicago PMI and Michigan Uni fortnightly consumer sentiment on Friday.

China will release industrial profits numbers today and PMIs this coming weekend while Japan will post retail sales numbers on Thursday and inflation, industrial production and employment numbers on Friday.

Locally, the NAB business confidence survey is due today but the biggie this week will be tomorrow’s release of the December quarter CPI numbers. Economists are predicting a drop to 1.8% annualised, down from 2.3% in the September quarter, providing potentially sufficient scope for the RBA to cut its cash rate next week, or maybe next month. Friday sees monthly private sector credit numbers.

On the local stock front, tomorrow through Friday sees the last rush of resource sector quarterly reports. Highlights include OZ Minerals ((OZL)), Fortescue Metals ((FMG)), Newcrest Mining ((NCM)), Oil Search ((OSH)) and Origin Energy ((ORG)).

Rudi will make his first appearance for the year on Sky Business this week, on Thursday, between 7-8pm, on the Switzer Report.
 

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

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