The Monday Report

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By Greg Peel

Mixed

With no Wall Street on Thursday night, Friday was never going to be a big session on Bridge Street. However strong gains for oil and base metals prices overnight, and a slight tick up for iron ore, ensured a solid start. The ASX200 was up 48 points from the open.

But if you’d blinked you would have missed it, as the index came right back down again before meandering to an insignificant close. While energy was able to lead the way with a 1.1% gain, materials slumped to a 0.4% fall. A pall still hangs over BHP Billiton and its dividend, and news over the weekend is that the Brazilian government is suing BHP and Vale for over $7bn for the dam disaster.

Elsewhere most sectors closed flat with the exception of utilities, down 1.8%. The market has voiced its disapproval of Spark Infrastructure’s involvement in the Transgrid consortium.

China

Bridge Street was winding to a close when the Shanghai stock market suddenly plunged on Friday evening to close down 5.5% for the session.

Neither the Chinese nor Australian stock markets showed much of a response earlier when Chinese industrial profits showed a 4.6% year on year fall in October, down from a 0.1% fall in September. Markets are currently taking Chinese economic weakness in their stride. The trigger for the Shanghai sell-off – the biggest since the August crash – was news the Chinese government is investigating several major brokerages for insider trading.

The news represents a widening of the investigation begun in August, growing to include the country’s largest brokerage firm Citic Securities. At the same time, China’s market regulator announced on Friday that Citic, a state-owned enterprise, had overstated the value of its derivatives portfolio by no less than one trillion renminbi, or around US$157bn.

If China’s stock market begins another sell-off, it will not be helpful for Santa. However, given the level of government intervention which finally halted the slide in August, one wonders just how far Chinese investors are game to sell down the market.

Meanwhile, the IMF is today expected to announce the addition of the Chinese renminbi into its basket of special drawing rights currencies, representing global reserve currencies. The addition follows Beijing’s clumsily handled “floating” of the renminbi a couple of months ago, which amounted to a significant devaluation and caused further global market angst. The renminbi will join the US dollar, euro, pound and yen.

Not So Black

It was a half-day session on Wall Street on Friday night, squeezed in between the Thanksgiving holiday and the weekend. Only the skeletons were in attendance. No surprise that activity was minimal and the indices closed flat. The Dow fell 14 points or 0.1%, the S&P was little changed at 2090 and the Nasdaq rose 0.2%.

For those who did draw the short straw, the focus was on the annual Black Friday sales fest. As the day progressed it soon became apparent America’s answer to Australia’s Boxing Day sales was proving to be a fizzer. Department store shares were sold down as a result.

But it was only a fizzer in terms of foot traffic in the big US bricks & mortar establishments. Online sales actually jumped 15% from last year, despite the fact the online equivalent is meant to occur tonight – Cyber Monday. The reality is the whole Black Friday/Cyber Monday thing has become an anachronism, and very blurred around the edges. Suffice to say in future the days after Thanksgiving will remain America’s biggest shopping days, just not under old-fashioned labels.

The only reason the Dow did not close flat was a 3% fall in Disney shares, thanks to news the company’s iconic ESPN sports network has lost three million subscribers in a year. The loss represents another example of “cord cutting” in the US – the shift away from cable television to online streaming services such as Netflix. In the case of sport, the major US sporting leagues are quietly shifting to their own live streaming services, thus drawing both content and viewers away from the likes of ESPN. The news in Australia last week is that the NRL will now jump on the streaming bandwagon, following in the footsteps of the AFL.

Bricks & mortar retailing and fixed-time television. Vale.

Commodities

The fall in the Shanghai stock market on Friday pushed the yen lower, given Japan’s trade dependency with China. This pushed the US dollar higher, to the point the index was able to raise its bat and salute the crowd. It’s up 0.2% at 100.09.

The combination of the stronger greenback and the potential of another Chinese stock market crunch was not what volatile metal markets want to contemplate, not to mention the 4.6% fall in Chinese industrial profits, within which the biggest falls were posted by China’s resource sector. Thus after a wild week, base metals prices finished Friday night with another round of steep falls.

Copper and lead fell over 1%, and aluminium, nickel and zinc all fell 3.5%. Tin was again the only non-mover.

Over the weekend, China’s nine biggest copper smelting companies met and agreed to cut production in 2016 by 200,000t or 5%. We shall await the LME response tonight.

Iron ore fell US10c on Friday night to US$43.50/t.

Gold fell US$14.00 to US$1056.60/oz as the dollar index reached the ton.

On the stronger greenback, the oils were weaker again. The geopolitical premium added last week following Turkey-Russia tensions has now waned as escalation fears have subsided. West Texas is down US54c to US$41.84/bbl and Brent is down US51c to US$44.86/bbl.

Lower commodity prices and strength in the greenback saw the Aussie down 0.5% on Saturday morning at US$0.7194, ahead of tomorrow’s RBA meeting and Wednesday’s GDP result.

The SPI Overnight closed down one point.

The Week Ahead

Wall Street will be quickly awoken out of its long weekend slumber this week with a raft of data releases, culminating on Friday with the all-important jobs report.

Tonight sees the Chicago PMI and pending home sales, Tuesday it’s construction spending and vehicle sales, Wednesday private sector jobs, Thursday factory orders and chain store sales, and Friday brings trade data along with non-farm payrolls. Tuesday also sees the manufacturing PMI and Thursday the services PMI, while the Fed’s Beige Book will be released on Wednesday and Janet Yellen will make a speech.

Tuesday is manufacturing PMI day across the globe, including in Australia, but China’s calendar now has both Beijing and Caixin publishing both their manufacturing and service sector PMIs on the first day of the month. The rest of the world will release service sector PMIs on Thursday.

The ECB will hold a policy meeting on Thursday, at which a QE extension is expected to be announced.

OPEC will meet on Friday but despite a lot of talk about oil price stability, is not expected to alter current production quotas.

It’s a busy week for Australian data, culminating in Wednesday’ September quarter GDP result.

Quarterly data releases beforehand include company profits and inventories today, and the current account, including the terms of trade numbers, tomorrow. There is also a raft of monthly data due out this week, including private sector credit and the TD Securities inflation gauge today, building approvals tomorrow, the trade balance on Thursday and retail sales on Friday.

The RBA will meet tomorrow and leave its rate unchanged, and Glenn Stevens will speak in Perth on Wednesday.

On the local stock front, the AGM season is now all but over outside of a trickle of stragglers meeting in December. Collins Foods ((CKF)) will report its half-year result on Wednesday.

On Friday, quarterly changes to the S&P/ASX stock indices will be announced, pending implementation on December 18.

Rudi will appear on Sky Business 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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