The Monday Report

This story features WESTPAC BANKING CORPORATION, and other companies. For more info SHARE ANALYSIS: WBC

By Greg Peel

Just A Flesh Wound

Friday saw a bit of bargain hunting in the local market after an otherwise corrective week with investors clearly keen to call the bottom in oil and metals prices. Materials (+1.5%) and energy (+1.3%) led the charge aided by some hesitant buying in the banks (+0.3%). Not enjoying the current state of play is the popular healthcare sector (-0.5%), which must trade off perceptions of a long term growth story with the immediate impact of the Aussie dollar, given our big names generate a lot of income offshore.

Resource sector buyers were encouraged by Beijing’s official Chinese manufacturing PMI for April, which came in at 50.1 against 50.0 expectations. Not exactly cork-popping stuff, but expansion nevertheless. Beijing’s service sector PMI slipped to 53.4 from 53.7.

Unsurprisingly, manufacturing in Australia continues to contract, albeit at a slower pace in April. The PMI rose to 48.0 from 46.2 in March. Manufacturing is no longer much of a contributor to Australia’s GDP, with the service sector now accounting for around 70%. Wholesale prices for services are running at a 0.9% annual growth rate according to Friday’s March quarter PPI data, while wholesale goods prices are flat thanks to the impact of oil prices. Net PPI came in at 0.7%pa, clearly no hindrance to an RBA rate cut tomorrow.

Bounce Back

The Bank of Japan made no policy changes at its meeting last Thursday despite downgrading its economic forecast, and despite QE competition from its major export rivals. Japan’s manufacturing PMI fell to 49.9 in April from 50.3, contracting for the first time in a year.

The UK equivalent fell to a seven month low 51.9 from 54.0, while the US ISM reading was unchanged at 51.1, missing forecasts of 52.0. Europe and China were closed for May Day on Friday so the eurozone PMI and HSBC’s China numbers will be published this week.

US weakness was further underscored by a 0.6% drop in construction spending in March, but Michigan Uni’s fortnightly measure of consumer sentiment held firm at 95.9, up from 93.0 a month ago, and a 5.4% jump in vehicle sales in April was well received.

As is the case in Australia, it appears there’s only so far Wall Street can fall before investors decide to get back in, given there are few other places beyond the stock market one can put one’s money. With Europe closed the US dollar index rallied 0.5% to 95.21 on Friday night and stock markets fell into step. Having fallen by roughly the same amount on Thursday night, the Dow gained 183 points or 1.0%. The S&P rebounded 1.1% to 2108 and all the biotech stocks that were on the nose for most of week suddenly looked like value, so the Nasdaq jumped 1.3%.

Copper This

Volumes on the LME were low on Friday night in the absence of China and Europe but the resurgence of copper continued as the bellwether metal posted another 1.7% gain. Elsewhere moves were mixed, with nickel falling 1.3%.

Iron ore remained unchanged at US$56.20/t.

The oils were also a bit quieter on Friday, slipping away from 2015 highs. West Texas fell US54c to US$59.26/bbl and Brent fell US27c to US$66.56/bbl.

Enigmatic gold appears to have broken down from its recent tight range with a US$5.90 fall to US$1177.90/oz, with the stronger greenback an excuse.

The Aussie dollar continues to build expectations the RBA will cut tomorrow, falling another 0.8% to US$0.7851.

Futures traders are thus expecting the stock market rebound to continue into today. The SPI Overnight closed up 34 points or 0.6% on Saturday morning.

The Week Ahead

It’s jobs week in the US this week, critical to the market’s ongoing obsession with debate over Fed rate rise timing. The ADP private sector number is due on Wednesday night and the non-farm payrolls report on Friday.

US data throughout the week will include factory orders tonight, the service sector PMI and trade balance tomorrow, private sector jobs and March quarter productivity on Wednesday, and chain store sales and consumer credit on Thursday. Friday brings the official jobs numbers, along with wholesale trade.

Japan will be closed Monday to Wednesday, and the UK will be closed tonight.

There will be much speculation during the week as the UK builds to Saturday’s general election. A hung parliament looks the likely outcome. A vote for the Tories means a referendum on whether the UK should withdraw from the EU.

HSBC will report its China manufacturing PMI result today and services on Wednesday. Beijing will release trade data on Friday and inflation numbers on Saturday.

It’s all happening economically in Australia this week. Today sees ANZ job ads, building approvals and the TD Securities inflation gauge. The RBA is at even shorter odds to cut on Tuesday than it was last month. The trade balance and services PMI are also due on Tuesday.

Wednesday it’s retail sales and new home sales, Thursday sees our own jobs numbers take a spin on the chocolate wheel (where it stops, nobody knows!), and the RBA will release its quarterly Statement on Monetary Policy on Friday.

On the local stock front, Westpac ((WBC)) will report half-year earnings today, ANZ Bank ((ANZ)) tomorrow and National Bank ((NAB)) on Thursday. Commonwealth Bank ((CBA)) will provide a quarterly update on Wednesday and Macquarie Group ((MQG)) will round out a big week for the banks with its full-year result on Friday.

News Corp ((NWS)) will release quarterly earnings tomorrow and Woolworths ((WOW)) will hold a strategy day on Wednesday and probably won’t mention the war. BHP Billiton ((BHP)) will hold an extraordinary meeting on Wednesday to vote on the South32 demerger, and Rio Tinto ((RIO)) will hold its AGM on Thursday.

A handful of other companies will also hold AGMs this week as the last of the resource sector quarterly production reports tickle in.

Rudi will appear on Sky Business 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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