The Monday Report

This story features ENERGY RESOURCES OF AUSTRALIA LIMITED, and other companies. For more info SHARE ANALYSIS: ERA

By Greg Peel

Comeback

It was looking pretty ugly for the ASX200 at the open on Friday, with early falls suggesting we could be in for one of those pre-weekend capitulations as sentiment turned sour once more. But having opened down 70-odd points, the index very quickly found buying support.

The early drop took us down through 4900, which suggests the impetus to buy at that point was largely a technical one. Or we might simply note that every time the index has fallen through 5000 this year, and even down towards 4800, it has subsequently recovered to trade back over 5000 every time.

Outside of a 1.3% fall in the insignificant info tech sector on Friday, the banks and energy led the index to its close of down 26 with 0.8% falls. Thereafter, sector falls were lighter and fairly uniform, but for utilities which managed the only gain on the day, up 0.2%.

Sentiment this week will centre on the first of the US earnings results, along with the first quarterly reports from local stocks.

Bring it on

Janet Yellen appeared at a gathering of Fed chairs past and present after the close of US trading on Thursday evening. Joined by Volker, Greenspan and Bernanke, it was not really the forum for Yellen to be spouting any significant change of heart on current monetary policy. Not that she was likely to anyway, and she didn’t.

The yen pulled back against the US dollar ahead of the open on Wall Street on Friday after its surging run on Thursday. Prime Minister Abe had previously ruled out intervention but on Friday Japan’s finance minister said he may act against a “one-sided” yen.

The easing yen allowed the US stock markets to open with some strength, taking the Dow up 150 points in the first half hour as oil prices posted another 5% jump. On the 2016 correlation, it was a no brainer for a solid session in US stocks. But this month that correlation has broken down.

The Dow closed up 35 points or 0.2% while the S&P gained 0.3% to 2047 and the Nasdaq was flat.

Oil prices may be bouncing around a lot, but at the moment they’re not really getting anywhere. The lack of overall direction, despite day to day volatility, has meant stock traders have moved on to concentrate on other drivers. This week that means corporate earnings, which by some measures have been now forecast to fall as much as a net double digit percentage.

Forecasts have actually been getting weaker and weaker this past couple of weeks, which tends to suggest they have become a little overblown to the downside. The proof of the pudding awaits over the course of the next month. Alcoa reports tonight, then there’s a bit of a gap to week’s end when the big bank results start to flow. The pullback from the highs for the indices on Friday night, despite oil holding onto 5% gains, likely reflects squaring up ahead of the first earnings numbers.

Commodities

Last week’s US data showed a surprise drop in crude inventories. On Friday night, the Baker Hughes rig count showed a drop to 354 from 362 a week earlier and 760 a year ago. While the third straight week of lower rig counts was no great shock, the oil market is beginning to see the numbers lining up and moving in the right direction.

No one expects this weekend’s meeting in Doha to result in any meaningful supply freeze agreement between OPEC and non-OPEC members, but on last week’s US data it probably doesn’t matter that much anymore. There may yet be some disappointment if nothing eventuates in Doha, but on the wider scheme of things, earlier talk of WTI having to go back to test its US$26 low is now waning.

West Texas was up US$2.08 or 5.5% at US$39.61/bbl on Saturday morning and Brent was up US$2.26 or 5.7% at US$41.85/bbl.

Stronger oil prices provided incentive for a more positive session on the LME. Copper and zinc rose 0.5%, tin 1%, aluminium 1.5% and nickel 2%.

Iron ore fell US50c to US$53.30/t.

Gold was relatively steady at US$1238.40/oz.

The US dollar index fell 0.3% to 94.19, helping the Aussie to rise 0.6% to US$0.7551.

The SPI Overnight closed up 20 points or 0.4% on Saturday morning.

The Week Ahead

US earnings results will be closely watched at the beginning and end of this week. US date releases this week include retail sales, inventories, the PPI and Fed Beige Book on Wednesday, CPI on Thursday, and industrial production, fortnightly consumer sentiment and the Empire State activity index on Friday.

China will release its March quarter GDP result on Friday. Forecasts suggest 6.7% growth, down from 6.8% in December.

Ahead of that release, Chinese monthly inflation numbers are due today, trade on Wednesday, and industrial production, retail sales and fixed asset investment on Friday.

Housing finance numbers are due out in Australia today. Tomorrow sees the NAB monthly business confidence survey and Wednesday the Westpac consumer equivalent. The monthly jobs lottery takes place on Thursday and on Friday the RBA will release a Financial Stability Review.

On the local stock front, Energy Resources of Australia ((ERA)) is due to release its March quarter production report today, thus kicking off the resource sector quarterly production reports season. Fortescue Metals ((FMG)) reports on Wednesday and Whitehaven Coal ((WHC)) on Thursday while Rio Tinto Plc ((RIO)) will hold its London AGM on Thursday night.

The non-mining quarterly report/update/ investor day season will be kicked off by IOOF Holdings ((IFL)) on Wednesday followed by Bendigo & Adelaide Bank ((BEN)) and Transurban ((TCL)) on Thursday.

Rudi will first appear on Sky Business on Tuesday, via Skype-link around 11.15am, then again for two hours on Wednesday morning (10-midday), on Thursday he'll be back from 12.30-2.30pm and finally he'll do another linkup via Skype on Friday morning, probably around 11.05am.
 

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

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