The Monday Report

This story features NATIONAL AUSTRALIA BANK LIMITED, and other companies. For more info SHARE ANALYSIS: NAB

By Greg Peel

Stimulus One

The Australian market had no qualms about jumping on the global bandwagon on Friday, whipped on by Mario Draghi and his near confirmation the ECB would extend its QE program beyond December. I had been noting last week global markets were struggling to find a reason to go up, and in such circumstances tend to drift down, but Draghi has proved there is pent up buying demand across the globe.

Healthcare was about the only local sector not to surge on Friday, and energy had a quieter day after a good run, but otherwise gains were significant across the board. It was not what one could call a rally, nevertheless, given the ASX200 opened up 80-odd points before peaking at a 110 point gain and drifting slightly to close up 87 points. The step-jump took the index to a close just above 5350.

Technically, a breach of 5420 would reopen the upside to the previous high.

While the rally was all about the ECB, there was a supporting element of the form of the bad news is good news kind on Friday. Caixin’s flash estimate of China’s October manufacturing PMI came in at 47.2, up from 47.0 in September.

Surely fresh Chinese stimulus must be nigh.

Stimulus Two

There was a possibility the PBoC would be prompted into action last weekend, following more weak data and a particularly dour inflation read, but it wasn’t to be. With the government’s new five-year plan set to be outlined at this week’s Plenary Session, it seemed appropriate any stimulus announcements would be made at that time.

But late on Friday, the Chinese central bank announced an interest rate cut – its sixth in twelve months – dropping the one-year lending rate by 25 basis points to 4.35% and the deposit rate by 25bps to 1.50%. As to whether the Caixin measure had tipped the PBoC over the edge, or whether China thought it has better to respond quickly to counter the ECB announcement, the result is the same.

It was off to the races again for offshore markets. London rallied 1.1%, France 2.5% and Germany 2.9%.

European markets were also spurred on by a flash estimate of the eurozone’s October composite PMI, which showed a jump to 54.0 from 53.6 in September.

High Tech

The US estimate also came in at 54.0, up from 53.1, to mark the highest reading in five months. Throw in the Chinese announcement and it was set to be a good day on Wall Street. In the end, it was the tech sector that stood out.

Amazon, now a veteran internet name and survivor of the 2000 tech wreck, has never booked a profit. Until the September quarter just passed. So surprised was Wall Street it sent Amazon shares up 6.2%.

Another survivor, Google, announced a buyback and its shares, now known under the parent company name of Alphabet, jumped 5.6%. And ditto Microsoft (Dow), which posted better than expected earnings and enjoyed a 10% rally.

The rally in tech spilled over into the volatile biotechs, and that recently beaten-down sector went for a run. By the close, the Nasdaq had rallied 2.3%. The Dow put on a 0.9% or 157 point gain, and the S&P split the difference in rising 1.1% to 2075.

Cue Johnny Mathis: It’s beginning to look a lot like Christmas…

Commodities

Base metal prices initially jumped on the Chinese rate cut news but faded later in the LME session when the US dollar started pushing ever higher. The dollar index had jumped 1.4% on Thursday night on the ECB factor and jumped another 0.7% on Friday night on the PBoC factor.

It was too much for some metals, with copper and tin falling 1% and lead and zinc closing flat, while aluminium and nickel managed 1% gains.

The quiet slide for iron ore continued, with another US50c drop to US$50.90/t.

Global stimulus is not being celebrated on oil markets, which are struggling against oversupply. On Friday night West Texas rose US11c to US$45.55/bbl and Brent fell US29c to US$47.94/bbl.

Money printing might be supportive of gold but the USD gold price must battle the USD. Gold was off slightly at US$1164.40/oz.

While currencies all about are rising and falling, the net result continues to be a flat Aussie dollar. It is little changed at US$0.7217.

The SPI Overnight closed up 55 points or 1% on Saturday morning.

The Week Ahead

The Fed has not raised, the PBoC has cut and the ECB is set to extend QE. The Bank of Japan meets on Friday, under some pressure one would presume.

We actually do have the October Fed meeting beforehand, with the statement due on Wednesday night, but no one expects any movement. On Thursday the first estimate of US September quarter GDP will be announced to fuel Fed debate once more.

The US will also see new home sales tonight, Case-Shiller house prices, Conference Board consumer confidence, durable goods and the Richmond Fed activity index on Tuesday, pending home sales on Thursday and the Chicago PMI, Michigan Uni consumer sentiment index and personal income & spending on Friday.

The RBNZ will also hold a policy meeting this week, on Thursday, but discussion will mostly centre around the rugby.

And then there’s the RBA. This week sees the September CPI data released on Wednesday amidst growing expectation of a Cup Day rate cut. Australia also sees new home sales data on Thursday and the PPI on Friday.

It is a very busy week on the local stock front.

This week sees a late rush by resource sector juniors to publish quarterly production reports. It is the biggest week on the calendar this week for AGMs.

National Bank ((NAB)) will release full-year earnings on Wednesday and ANZ Bank ((ANZ)) on Thursday while Macquarie Group ((MQG)) will releases its interim on Friday.

Medibank Private ((MPL)) will hold an investor day tomorrow and Telstra ((TLS)) on Thursday, while Woolworths ((WOW)) will release quarterly sales numbers on Thursday.

Rudi will host Your Money, Your Call on Sky Business this Wednesday. He will also appear on Thursday at noon (Lunch Money) and again on Friday, this time as guest on Your Money, Your Call – Bonds versus Equities.

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

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