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The Monday Report

Daily Market Reports | Mar 21 2016

This story features KMD BRANDS LIMITED, and other companies. For more info SHARE ANALYSIS: KMD

By Greg Peel


The ASX200 surged almost 50 points early in the session on Friday but eased back by lunchtime ahead of a quiet afternoon. Stronger commodities prices again supported the resources sectors but the banks were flat, and we’re beginning to see evidence of the damage caused by a suddenly much stronger Aussie.

Materials closed up 1.7% and energy 0.8% but healthcare fell 1.1% as offshore exposure and ongoing fears surrounding the upcoming federal budget continue to weigh.

It's Easter this weekend providing for short weeks this week and next, plus next week also sees the end of the March quarter before we then shift into a school holiday period in April. As excitement over the Fed’s more measured policy stance dies down, we should now see a period of consolidation following the solid bounce up to 5200 from 4800 for the index.

The subject du jour is of course commodity prices, and whether they can hold up at these rebound levels. The banks have returned from what were considered oversold levels and as yet there is no expectation of a rate cut from the RBA anytime soon.

That might possibly change tomorrow when Glenn Stevens makes a speech and takes a Q&A, given all that has transpired in central bank and currency land since the March RBA meeting.

Start Again

Wall Street posted its fifth straight week of gains last week and the Dow rallied six sessions in a row for the first time since October. After Friday’s rally, which was really just more of the same from Thursday post-Fed, both the Dow and S&P500 are in positive territory for the year.

The Dow closed up 120 points or 0.7% while the S&P gained 0.4% to 2049 and the Nasdaq added 0.4%.

The major driver of the stock index rebound has been the commodity price rebound and the weaker US dollar, driven by abating Fed hike fears. The lower greenback also feeds into stronger commodity prices. Commodity prices may be back where they began the year but there has not been any change to the outlook for the Chinese economy, which supposedly was one of the scare factors that took Wall Street down in the first place.

That puts the focus squarely back on central bank policy as the provider of stock market stimulus.

Michigan Uni reported on Friday night that its fortnightly US consumer sentiment gauge had fallen to a five-month low 90.0 from 91.7. US consumers are apparently now worried that the US economy is not going to grow as fast as early assumed and that on the rebound in the oil price, gasoline prices will begin to rise ahead of the summer driving season.

The WTI price fell 2% on Friday night because for the first time in 13 weeks, the domestic rig count rose. The bounce was in the order of…drum roll…one rig, but no doubt it had the market wondering whether reductions have now reached their limit.

Nevertheless, the total rig count, which includes Gulf oil that has recently taken a back seat to domestic shale oil, fell by four rigs to 476 last week to a new record low. Since a year ago, 593 rigs have ceased operation. One would think that such a massive shutdown of supply would have to suggest oil prices have seen their lows and should go higher form here but the problem is one of a self-defeating feedback loop. Modern shale oil rigs can be switched back on again in a heartbeat and if oil prices remain supported, many probably will.

And that’s likely why the addition of one lonely domestic rig tipped oil prices over.

It’s also interesting to note, once more, that the correlation between the oil price and Wall Street was negative on Friday night.

It was actually the biggest volume day of 2016, but that’s understandable given the March quarter quadruple witching expiry and the closing bell rebalancing of S&P500 weightings. Given the S&P closed just a tad under 2050, one presumes this strike price was influential in Wall Street’s move on Friday night.

So we’ll see what happens tonight.


West Texas crude fell US79c to US$39.33/bbl and Brent rose US12c to US$41.46/bbl.

After falling solidly in the wake of the Fed meeting, the US dollar index rebounded slightly on Friday night, up 0.3% to 95.01. This was a sufficient trigger to spark some profit-taking in base metals prices that have been enjoying the benefits of the weaker greenback up to now. Aluminium and copper fell 0.5%, lead and tin fell 1%, nickel fell 2.5% and zinc was steady.

Iron ore rose US90c to US$56.30/t.

The bounce in the greenback helped the Aussie down 0.5% to US$0.7604 on Saturday morning but gold held its ground, steady at US$1255.10/oz.

The SPI Overnight closed up 29 points or 0.6% on Saturday morning.

The Week Ahead

US data releases this week include the Chicago Fed national activity index and existing home sales tonight, FHFA house prices and the Richmond Fed index on Tuesday, and new home sales on Wednesday. Thursday it’s durable goods, and Friday another revision of December quarter GDP.

Which reminds us the Good Friday is not actually a national public holiday in the US despite markets being closed. And Wall Street opens on Easter Monday. Markets are closed on Friday in Australia, New Zealand, the UK and Europe.

Thursday also sees a flash estimate of March manufacturing PMI in the US, as well as in Japan and the eurozone. The eurozone also sees the release of both the ZEW investor sentiment and IFO German business sentiment indices on Tuesday night.

Australia is devoid of major economic data this week, although as noted, Glenn Stevens’ speech tomorrow will be a must-see event.

On the local stock front, there are still a handful of stocks left to go ex-div this week while out of cycle earnings reports will be forthcoming from Kathmandu ((KMD)) and TPG Telecom ((TPM)) tomorrow and Brickworks ((BKW)) and Nufarm ((NUF)) on Wednesday. Westpac ((WBC)) will provide a strategy update on Thursday.

Rudi will appear on Sky Business on Tuesday morning (11.15am) via Skype-link, then later on Tuesday he'll host Your Money, Your Call (8-9.30pm). On Thursday Rudi re-appears 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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