The Monday Report (On Tuesday)

This story features ANZ GROUP HOLDINGS LIMITED. For more info SHARE ANALYSIS: ANZ

By Greg Peel

Thursday

Weakness in metals prices sent the local materials sector south by 1.7% on Thursday, while energy managed to hold up despite a fall in the oil price. While oil continues to fluctuate, it has pretty much been jogging on the spot for the last couple of weeks.

Only one other sector fell on Thursday, but a 2.5% plunge in the banks represents a big hit to the ASX200. Reality has bitten, with ANZ Bank ((ANZ)) announcing it would take an additional $100m provision against potential bad loans to the energy sector, while Westpac is setting aside $25m to cover personal loans in the stressed mining states of Queensland and WA.

No doubt investors saw parallels with European banks, which have suffered significant share price falls this year due to exposure to energy as well as emerging markets. Throughout the year, analysts have assured their clients Australia’s banks are not onerously exposed to the resource sector, and nor are the US banks in terms of proportion of all loans. Were they wrong?

No. Panic may have emerged on Thursday but these provisions represent small numbers in the scheme of things. A provision of $25m would about cover Westpac’s board room lunch bill for the year, and even $100m for ANZ is still nothing major compared to the banks’ capital positions. All banks were nevertheless sold down on Thursday on suspicion. Provisions do, of course, reduce the earnings pool from which dividends are paid out on a ratio basis.

The sell-down for the index on Thursday was all about the banks and not a market-wide event. Sector rotation was evident, with the defensive sectors of healthcare and utilities among apparent recipients of liquidated bank shares.

Thursday Night

On Thursday night the Dow closed up 13 points while the S&P was flat at 2035 and the Nasdaq rose 0.1%.

Oil prices fell again early in the US session following Wednesday night’s data suggesting ever more increasing inventories, but relief was found in the weekly rig count, which posted another fall. The Dow was down 100 point at one stage and the US banks, too, suffered from energy market-related selling, but when oil turned, Wall Street returned to a flat close.

The S&P500 nevertheless closed down for the week after a five-week winning streak.

Adding to early weakness was an announced 2.8% fall in US new durable goods orders in February – the third decline in four months. While this was not actually as bad as the 2.9% decline economists had forecast, the breakdown of the data showed weakness in every major industrial sector except autos.

Having enjoyed a revival of sorts post-GFC, US manufacturing has more recently been battling against a stronger greenback, a slowing global economy and the fallout from the energy sector rout.

All of which is another reason to assume the Fed will not be raising its cash rate in April.

The US dollar index was flat at 96.11 on Thursday night and the Aussie was also little changed at US$0.7531.

West Texas crude closed down US24c at US$39.60/bbl and Brent was little changed at US$40.49/bbl.

Zinc has recently taken the mantle as the most volatile of base metals on the LME and it dropped 2.5%, while the pre-Easter session saw all other metals not much trouble the scorer.

Gold fell US$4.20 to US$1216.70/oz.

The SPI Overnight closed down 12 points or -0.2% on Friday morning.

Monday Night

Wall Street was open on Easter Monday but for many it is still a holiday period, coinciding with Spring Break. Europe was closed and trading on US exchanges was very quiet. US stocks indices meandered mildly higher during the session before a shooting incident at the Capitol building in Washington put a brief scare through the market an hour ahead of the close.

The Dow retreated to the flat line once more but as the incident was quickly contained, a modestly higher close was achieved. The Dow closed up 19 points or 0.1% while the S&P closed two points higher at 2037 and the Nasdaq lost 0.1%.

Fed chair Janet Yellen will be speaking tonight, which was another reason Wall Street was not interested in getting carried away last night. To that end, last night’s US data releases included consumer spending and inflation numbers.

Incomes rose 0.2% in February having risen 0.5% in January, while spending rose 0.1% having risen by 0.1% in January. The January spending figure was revised down from a 0.5% increase published a month ago. The personal consumption & expenditure (PCE) index fell to 1.0% year on year from 1.2% in January.

The core PCE, which is the Fed’s preferred inflation indicator, remained unchanged at 1.7% year on year, stubbornly below the Fed’s 2% target.

There is nothing in those numbers to suggest the push from a cohort of FOMC members to hike in April will gain any traction. The March jobs data are due out this Friday. When Yellen speaks tonight, Wall Street will be looking for some clarification on whether the Fed chair remains the head of the US central bank, or whether she now considers herself head of the World central bank.

In other words, there is much debate in US markets as to whether it is the Fed’s role to set policy based on the state of the world economy rather than just the US economy, as is the mandate.

Other data released last night included February pending home sales, which rose 3.5%.

Oil prices are only slightly weaker last night from Thursday night with West Texas down US19c at US$39.41/bbl and Brent down US22c at US$40.27/bbl.

The London Metals Exchange was closed last night.

Over two sessions since Thursday, the spot iron ore price is down US$2.10 to US$55.20/t.

The US dollar index is slightly lower at 95.99 and the Aussie is slightly higher at US$0.7544. Gold is up US$3.20 at US$1219.90/oz.

The SPI Overnight was closed last night, leaving Thursday night’s 12 point fall as the starting point this morning.

The Week Ahead

Not a lot is expected from markets across the globe until Janet Yellen makes her speech tonight. Thursday is the end of the quarter, so there may be some pushing and shoving going on this week ahead of books close.

Books close also comes ahead of the all-important US non-farm payrolls report due on Friday, being the first of the new month. That also means manufacturing PMI numbers from around the globe and both the manufacturing and services PMIs from China.

Other US data releases during the week include Case-Shiller house prices and the Conference Board’s monthly consumer confidence measure tonight, the ADP private sector jobs report tomorrow, Chicago PMI on Thursday and construction spending, vehicle sales and Michigan Uni’s fortnightly consumer sentiment measure on Friday, along with jobs and the manufacturing PMI.

Besides the manufacturing PMI release on Friday, Australia will see private sector credit data on Thursday along with new home sales, and house prices on Friday.

There are just a few more stocks going ex-dividend this week, across Wednesday and Thursday.

Rudi will appear on Sky Business  on Thursday (12.30-2.30pm) and again on Friday around 11.05am through Skype-link to discuss broker calls.
 

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

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

Click to view our Glossary of Financial Terms